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Once again, the Canadian Mortgage and Housing Corporation (CMHC) is tightening the criteria to get a mortgage with less than a 20% down payment. Any potential home buyer with less than a 20% down payment must purchase default insurance on their loan and have a minimum down payment of 5%. CMHC is a federal Crown Corporation that provides such default insurance. Its mandate is to help Canadians access affordable housing options. Providing mortgage insurance to home buyers is one of its main activities. Mortgage default insurance protects lenders in the event a borrower ever stopped making payments and defaulted on their mortgage loan--a very infrequent occurrence in Canada.

There are private providers of default insurance as well--Genworth Financial Canada and Canada Guaranty. CMHC is the only insurer of mortgages for multi-unit residential properties, including large rental buildings, student housing and nursing and retirement homes. It is the largest provider of mortgage default insurance by far and is also the primary insurer for housing in small and rural communities.

Investment properties are not eligible for mortgage insurance. Because of this, the buyer needs at least a 20% down payment to buy an investment property. Homes costing more than $1 million, as well, are not eligible for mortgage insurance. Typically, the lender chooses the mortgage insurer. 


Why is CMHC Tightening Qualifications?

The economics team at CMHC has predicted that owing to the pandemic lock down, home prices will likely fall by 9% to 18% over the next 12 months. They also believe that it will take at least two years for prices to return to pre-pandemic levels. The CMHC forecast for the economy is more pessimistic than many other forecasts, particularly that of the Bank of Canada, which asserted yesterday that the outlook for the economy was better than their April forecast suggested. Moreover, CMHC acknowledges the high degree of uncertainty associated with any forecast at this time. The Crown Corporation highlights the post-shutdown job losses, business closures and the drop in immigration that adversely affect Canadian housing.

They also have emphasized the 15% of existing mortgages that are now in deferral and believe there is a risk that 20% of all mortgages could be in arrears when deferrals end. Their stated justification for tightening qualification requirements is "to protect future home buyers and reduce risk".


What Are These Changes In Underwriting Policies

Effective July 1, the following changes will apply for new applications for homeowner transactional and portfolio mortgage insurance:

  • The maximum gross debt service (GDS) ratio drops from 39 to 35
  • The maximum total debt service (TDS) ratio drops from 44 to 42
  • The minimum credit score rises from 600 to 680 for at least one borrower
  • Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes

Due to these changes, it’s estimated that Canadians who need this insurance will see their buying power reduced by almost 12%. Under the current rules, a family with an annual income of $100,000 and a 10% down payment could qualify for a home worth $524,980. Under the new GDS limit of 35, the same household can now only afford a home of $462,860.


Here's What We Know So Far

  • Anecdotal reports suggest that it is likely that private default insurers will not match CMHC's lower debt ratios. They might, however, be more selective in their approval processes.
  • The exact impact of these changes will not be known until more details are available: How the Big Banks will respond with their own prime mortgage underwriting rules; how these new rules will apply to the securitization market; and how far the private default insurers will go along with these new rules.
  • This batters buyer and seller confidence and, all other things equal, has a net negative impact on the near-term housing outlook. In my view, these changes are unnecessary to protect the prudence of Canada's home lending practices. Mortgage delinquency rates are meager, and even the Bank of Canada's forecast is for delinquencies to remain less than 1% of all outstanding mortgages.
  • Homebuyers with jobs who meet former qualifications would undoubtedly have a longer than two-year time horizon when buying their first homes. They were already qualifying at the posted rate that is more than 250 basis points above the contract rate. If anything, the pandemic recession assures that interest rates will remain very low over the next two years.
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Effective March 15, the Real Estate Board of Greater Vancouver (REBGV) disabled Paragon’s open house feature on so members would refrain from hosting open houses given COVID-19 concerns.


As a result, a few hundred members have cancelled their open houses since then and we thank you for your quick action. All other realtors are to follow suit and help the profession do its part to prevent the further spread of illness in our communities. 


Currently realtors are encouraged to consider other approaches, such as virtual showings and other technology-based solutions. This change will be in effect until the government relaxes social-distancing requirements.


“Showing homes or holding strata meetings during the COVID-19 pandemic raises new risks for licensees. For example, what if you inadvertently expose a client or member of the public to the COVID-19 virus during an open house or showing and they sue you for damages? What if a strata manager arranges an AGM for a strata corporation and an attendee claims to have contracted the virus at the meeting, then sues the strata manager?”


We’ll continue to assess the COVID-19 situation and provide updates and resources to you as necessary. Presently, home owners are still selling and new listings are hitting the Vancouver Real Estate Market and buyers are taking advantage of the competitive interest rates. We don't know how long this activity will be sustained but as it stands, transactions are taking place and we hope it's all conducted in a safe manner. Thank you for doing your part to protect the public and each other.


Stay well.

-YVR Resale-

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We are seeing renewal premium increases from between 50% and 400% and deductible increases from $25,000 per claim to $250,000, $500,000 for water-related losses in British Columbia. Stratas are required to have insurance for full replacement cost, and some are struggling to find full coverage. These dramatic changes are leaving strata corporations and unit owners in vulnerable positions as they scramble to find adequate coverage.


“Now is the time to act to help stabilize the market,” says Chuck Byrne, IBABC executive director. “We all have the consumer’s best interest in mind, and by acting together we can help them through this difficult situation and add long-term clarity and stability to the market."


Many factors impact the price of strata insurance. Some of these include:


  • Buildings size and construction materials used. For example, wood frame buildings are more susceptible to ‑re and water damage, and will be priced dierently.
  • Claims history. A strata with a history of claims will likely see an increase in their insurance premiums.
  • Where a building is located. For example, buildings in ­ood plains will see an increase in the cost of ­ood insurance. Similarly, buildings in high-risk earthquake zones will see a higher price for earthquake insurance.
  • The number of unoccupied units, or tenants. Stratas with many unoccupied units may not be maintained or repaired as quickly as eectively as those fully occupied by unit owners.
  • The value of real estate. Building values and construction costs have risen greatly in recent years. As these have increased, so too has the cost of replacement and repairs.
  • Lack of regular maintenance. Insurers have seen an increase in strata insurance claims in lieu of regular maintenance.


What you can do now.


1.   Shop around for the most aordable coverage.

2.   Reduce your risk: Maintain your buildings and work with owners to manage risks and reduce potential for claims.




For a live podcast posted by Shaheed Devji and Shawn Fehr, Chair of the Board of the Insurance Brokers Association of BC, clink link below:

  

The Changing Landscape of Strata Insurance in BC

https://www.bcrea.bc.ca/podcast/episode-2-the-changing-landscape-of-strata-insurance-in-bc/

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The market is on the rise! Just as we’ve been saying. One of a few articles that are coming out speaking out about what to expect in 2020. And with inventory of active listings continuing to decline, there is a need for new listings! So buyers, ready, set, BUY! There was a 1 bed apartment downtown that had 22 offers on it this week! Article attached and link below:


https://globalnews.ca/news/6215532/metro-vancouver-real-estate-sales-prices-2021/


As discussed at the meeting on Monday, an update on the Vancouver Empty Homes Tax – numbers for varying neighbourhoods and results from the last 2 years. As well, Mayor Kennedy Stewart had campaigned on a platform of increasing the tax from 1 to 3%, but City Staff have recommended keeping it at 1%. Article is attached for those interested! Smile


https://www.vancouverisawesome.com/2019/11/22/empty-homes-tax-rate-increase-vancouver/

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2019 was a big year of change for the Greater Vancouver Real Esate Market and here is why...!


  1. Due to uncertainty caused by aggressive taxation of Real Estate in BC, tightening of financing (Stress test), and a naturally cooling market, 2018-2019 resulted in the slowest two years in the Vancouver Real Estate marketplace since 1999.
  2. When buyer’s confidence is shaken, they go to the sidelines and wait. As time goes by, this group grows into pent up buyer demand. At the same time, more buyers add to this demand due to population growth in the region.
  3. We have had 17 months (February 2018-June 2019) where sales were lower than the same month in the previous year; something rarely seen in the Vancouver Market.
  4. Residential sales since July 2019 (5 months in a row) have exceeded the same month in the previous year. This is always a signal of the market starting to recover. Other signals: Supply: unusually low for a period following a slowdown. Media reporting: Starting to report the market upswing. Multiple offers: A significant increase due to buyers acting. Open houses and new listings generating lots of interest.
  5. Pent up demand is a powerful force when coupled with time and a reduction in prices. People’s lives carry on regardless of Government policy. They get married, get older, have babies, want to help their children, move jobs, pass away, need a bigger/smaller home, etc., etc.
  6. The ten year average for residential sales for the Real Estate Board of Greater Vancouver is 33,000 homes per year. This average actually grows naturally over time due to population growth in the region. 
  7. Two years of sales at approximately 25,000 units leaves at least 16,000 buyers now waiting to buy on top of the buyers that will buy regardless of the market, the media or Government actions!


The waiting is over and the Real Estate market recovery has begun. 2020 in Vancouver will be busy in Real Estate as the enormous pent up demand starts to take advantage of low interest rates, better prices (for now!) and all of the wonderful things Vancouver has to offer!

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Statistics released today by the Canadian Real Estate Association (CREA) show that national home sales rose for the sixth consecutive month. Transactions are now running almost 17% above the six-year low reached in February 2019, but remain about 10% below highs reached in 2016 and 2017. Toronto, Montreal and Vancouver all saw sales and prices rise. CREA updated its 2019 sales forecast, now predicting a 5% gain this year. Gains were led by a record-setting August in Winnipeg and a further improvement in the Fraser Valley. These confirm signs that the country's housing market is returning to health.


Actual (not seasonally adjusted) sales activity was up 5% from where it stood in August 2018. The number of homes that traded hands was up from year-ago levels in most of Canada's largest urban markets, including the Lower Mainland of British Columbia, Calgary, Winnipeg, the Greater Toronto (GTA), Ottawa and Montreal.

 
 



New Listings
The number of newly listed homes rose 1.1% in August. With sales and new supply up by similar magnitudes, the national sales-to-new listings ratio was 60.1%—little changed from July's reading of 60.0%. The measure has risen above its long-term average (of 53.6%) in recent months, which indicates a tighter balance between supply and demand and a growing potential for price gains.

Based on a comparison of the sales-to-new listings ratio with the long-term average, about three-quarters of all local markets were in balanced market territory in August 2019. Of the remainder, the ratio was above the long-term average in all markets save for some in the Prairie region.

There were 4.6 months of inventory on a national basis at the end of August 2019 – the lowest level since December 2017. This measure of market balance has been increasingly retreating below its long-term average (of 5.3 months).

There is considerable regional variation in the tightness of housing markets. The number of months of inventory has swollen far beyond long-term averages in Prairie provinces and Newfoundland & Labrador, giving homebuyers an ample choice in these regions. By contrast, the measure is running well below long-term averages in Ontario, Quebec and Maritime provinces, resulting in increased competition among buyers for listings and fertile ground for price gains. Meanwhile, the measure is well centred in balanced-market territory in the Lower Mainland of British Columbia, making it likely that prices there will stabilize.

 
 

Home Prices
Canadian home prices saw its biggest one-month gain in two years. The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose 0.8% m-o-m in August 2019.

Seasonally adjusted MLS® HPI readings in August were up from the previous month in 14 of the 18 markets tracked by the index, marking the biggest dispersion of monthly price gains since last March.

In recent months, home prices have generally been stabilizing in British Columbia and the Prairies, a measure which had been falling until recently. Meanwhile, price growth has begun to rebound among markets in the Greater Golden Horseshoe (GGH) region amid ongoing price gains in housing markets east of it.

A comparison of home prices to year-ago levels yields considerable variations across the country, with declines in western Canada and price gains in eastern Canada.

The actual (not seasonally adjusted) Aggregate Composite MLS® (HPI) was up 0.9% year-over-year (y/y) in August 2019. This marks the second consecutive month in which prices climbed above year-ago levels and the most substantial y/y increase since the end of last year.

Home prices in Greater Vancouver (GVA) and the Fraser Valley remain furthest below year-ago levels, (-8.3% and -5.5%, respectively). Vancouver Island and the Okanagan Valley logged y/y increases of 3.7% and 1.5% respectively.

Prairie markets posted modest price declines, while y-o-y price growth has re-accelerated ahead of overall consumer price inflation across most of the GGH. Meanwhile, price growth has continued uninterrupted for the last few years in Ottawa, Montreal and Moncton.

All benchmark home categories tracked by the index returned to positive y/y territory in August. Two-storey single-family home prices were up most, rising 1.2% y/y. This category of homes had .been hardest hit during the slump. One-storey single-family home prices rose 0.7% y/y, while townhouse/row and condo apartment units edged up 0.3% and 0.5%, respectively.

 
 

Stress Test
Canada’s introduction of stricter mortgage-lending rules last year inhibited some potential home buyers. Until recently, declining interest rates and lower home prices may have allowed some of those buyers to return to the market, according to the CREA report.

“The recent marginal decline in the benchmark five-year interest rate used to assess homebuyers’ mortgage eligibility--from 5.34% to 5.19%--together with lower home prices in some markets, means that some previously sidelined homebuyers have returned,” said Gregory Klump, CREA’s chief economist. “Even so, the mortgage stress-test will continue to limit homebuyers’ access to mortgage financing, with the degree to which it further weighs on home sales activity continuing to vary by region.”

CREA also updated its forecasts. National home sales are now projected to recover to 482,000 units in 2019, representing a 5% increase from the five-year low recorded in 2018. The upward revision of 19,000 transactions brings the overall level back to the 10-year average, but remains well below the annual record set in 2016, when almost 540,000 homes traded hands, CREA said.

 
 

Bottom Line: This report is in line with other recent indicators that suggest housing has recovered from a slump earlier, helped by falling mortgage rates. The run of robust housing data gives the Bank of Canada another reason -- along with robust job gains, higher wage rates and stronger than expected output growth in Q2 -- to hold interest rates steady, even as more than 30 central banks around the world have cut interest rates further.

The Federal Open Market Committee meets again on Wednesday, and it is widely expected that they will cut rates by 25 basis points as the White House is calling for "emergency easing moves." The Trump administration has just in the past few days succumbed to political pressure to reduce trade tensions. Trade uncertainty is the only thing right now that would derail the Canadian recovery.

As a result of this recent easing in trade tensions and last week's cut in overnight rates further into negative territory by the European Central Bank, the flight to US Treasury bond safety diminished, raising the US and Canadian government bond yields by roughly 25 basis points from extremely low levels. Canadian 5-year bond yields at 1.48% are at their highest level in two months. In consequence, the spread between the best 5-year fixed mortgage rates and 5-year government bonds is at a very tight 77 basis points, which is likely not sustainable. A more normal spread between the two is 120-ish (or more) for the best rates and 150-plus-ish (for regular rates). Some lenders are already hiking mortgage rates.

The situation has been compounded with even more considerable uncertainty with the weekend bombing of the Saudi Aramco oil fields, taking an estimated half of all Saudi oil out of production. Stay tuned.

 
 
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Qualifying Mortgage Rate Falls For First Time Since B-20
 
 

The interest rate used by the federally regulated banks in mortgage stress tests has declined for the first time since 2016, making it a bit easier to get a mortgage. This is particularly important for first-time homeowners who have been struggling to pass the B-20 stress test. The benchmark posted 5-year fixed rate has fallen from 5.34% to 5.19%. It’s the first change since May 9, 2018. And it’s the first decrease since Sept. 7, 2016, despite a 106-basis-point nosedive in Canada’s 5-year bond rate since November 8 (see chart below).

Five-Year Canadian Bond Yield

 
 

The benchmark qualifying mortgage rate is announced each week by the banks and "posted" by the Bank of Canada every Thursday as the "conventional 5-year mortgage rate." The Bank of Canada surveys the six major banks’ posted 5-year fixed rates every Wednesday and uses a mode average of those rates to set the official benchmark. Over the past 18-months, since the revised B-20 stress test was implemented, posted rates have been almost 200 basis points above the rates banks are willing to offer, and the banks expect the borrower to negotiate the interest rate down. Less savvy homebuyers can find themselves paying mortgages rates well above the rates more experienced homebuyers do. Mortgage brokers do not use posted rates, instead offering the best rates from the start.
The benchmark rate (also known as, stress test rate or “mortgage qualifying rate”) is what federally regulated lenders use to calculate borrowers’ theoretical mortgage payments. A mortgage applicant must then prove they can afford such a payment. In other words, prove that amount doesn’t cause them to exceed the lender’s standard debt-ratio limits.

The rate is purposely inflated to ensure people can afford higher rates in the future.

 
 

The impact of the B-20 stress test has been very significant and continues to be felt in all corners of the housing market. As expected, the new mortgage rules distorted sales activity both before and after implementation. According to TD Bank economists in a recent report, "The B-20 has lowered Canadian home sales by about 40k between 2017Q4 and 2018Q4, with disproportionate impacts on the overvalued Toronto and Vancouver markets and first-time homebuyers...All else equal, if the B-20 regulation was removed immediately, home sales and prices could be 8% and 6% higher, respectively, by the end of 2020, compared to current projections."

According to Rate Spy, for a borrower buying a home with 5% down, today’s drop in the stress-test rate means:

  • Someone making $50,000 a year can afford $2,800 (1.3%) more home
  • Someone making $100,000 a year can afford $5,900 (1.3%) more home
    (Assumes no other debts and a 25-year amortization. Figures are rounded and approximate.)

For a borrower buying a home with 20% down, today’s drop in the stress-test rate means:

  • Someone making $50,000 a year can afford $4,000 (1.4%) more home
  • Someone making $100,000 a year can afford $8,300 (1.4%) more home
    (Assumes no other debts and a 30-year amortization. Figures are rounded and approximate.)

Bottom Line: Almost no one saw this coming due to the stress test rate's obscure and arcane calculation method (see Note below). This 15 basis point drop in in the qualifying rate will not turn the housing market around in the hardest-hit regions, but it will be an incremental positive psychological boost for buyers. It should also counter, in some small part, what’s been the slowest lending growth in five years.

Note: Here's the scoop on why the qualifying rate fell. According to the Bank of Canada:
“There are currently two modes at equal distance from the simple 6-bank average. Therefore, the Bank would use its assets booked in CAD to determine the mode. We use the latest M4 return data released on OSFI’s website to do so. To obtain the value of assets booked in CAD, simply do the subtraction of total assets in foreign currency from total assets in total currency.”

The BoC explains further:

“Prior to July 15th, we were using April’s asset data to determine the typical rate as that was what was published on OSFI’s website. On July 15th, OSFI published the asset data for May, and that is what we used yesterday to determine the 5-year mortgage rate. As a result, the rate changed from 5.34% to 5.19%.”



Simon Wong
Manager Mortgage Specialist
simonwongmp@gmail.com


 
 
 
 
 
 
 
 
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The Metro Vancouver resale real estate market is primed for a comeback!

Never have we seen the market with sales and listings numbers like we are experiencing right now. Even with monthly sales below that of a typical May and the 10-year average, fundamentals shown by new and active listing counts that there is significant confidence. And with sales in May 44% above those in April, it’s not a slumping market, but one with a gasp of breath! Ask REALTORS® how many multiple offers they have experienced in the last month. Supply is the story!

The market is always right—supply and demand ultimately dictates it and the recent intervention on the demand side by the provincial government through taxes and the federal government through the stress test only serve reduce prices significantly in the high end for those the government wanted out of this market and prevent home buyers from getting into homes in the bottom end—affordability has not improved and will not get any better without a serious look at the supply side.

Supply Side of the Equation Continually Ignored!

Supply of homes will continue to be an issue without being addressed by government at all levels. With increased taxes, costs and restrictive zoning, developers are pulling back and we’ll see a lack of new supply and especially the right supply in the next 2 to 3 years. That coupled with low resale inventories now, significant pent up demand, a growing population and Metro Vancouver being a region where people gravitate to, the cycle will continue with demand outstripping supply and prices rising.

When you look at the numbers, we’ve seen 3 previous significant slow downs in Vancouver real estate. During 1997 to 1999, 2008 to 2009 and 2010 to 2013 home sales in Greater Vancouver persisted below 2,000 units. In each of those first two periods, there were over 20,000 listings and close to it in the last. This recent slow down we’re seeing the market struggle to get over 15,000 active listings—at a time when the overall housing stock is at it’s highest!

The lack of homes listed during one of the slowest markets we’ve encountered in 30 years shows that sellers are not looking to “panic sell”—some will sell out of need and agree to prices below what they would like, others will hold and wait.

There is confidence in the Metro Vancouver real estate market—with more buyers and fewer sellers, it will lead to stabilization in the market.

We may be seeing prices bottom out in the lower and middle end of the market, but there are still great opportunities for buyers, but they are diminishing.

Since Dexter Realty released Kevin’s analysis of recent sales data, news outlets are taking note and the story being told is starting to change. The Daily Hive has already posted their own article on Metro Vancouver’s real estate, drawing heavily upon Kevin’s expertise. The the Vancouver Courier, Business in Vancouver and Western Investor have done articles as well. We won’t be surprised to see even more outlets following soon following suit.

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The speculation and vacancy tax is a key measure in tackling the housing crisis in major urban centres in British Columbia, where home prices and rents have skyrocketed out of reach for many British Columbians.


The provincial government is taking action because people who live and work in B.C. deserve an affordable place to call home. This new annual tax is designed to:


  • Target foreign and domestic speculators who own residences in B.C. but don’t pay taxes here
  • Turn empty homes into good housing for people
  • Raise revenue that will directly support affordable housing


The tax applies to residential properties in Capital Regional District (Victoria), Metro Vancouver Regional District excluding Bowen Island, Village of Lions Bay but including the University Endowment Lands and UBC, City of Abbotsford, District of Mission, City of Chilliwack, City of Kelowna and West Kelowna, City of Nanaimo and District of Lantzville


The tax will 0.5% for 2018 and 0.5 for Residents of British Columbia and Canadian Citizens and 2% for Foreign Nationals in 2019 and going forward from there.


All residential property owners on title in designated taxable regions of B.C will have to complete an annual declaration for the Speculation and Vacancy Tax to claim any relevant exemptions. Where there are multiple owners of a home, a declaration must be completed by each owner.


For more information and exemptions see the link below: 

https://www2.gov.bc.ca/gov/content/taxes/property-taxes/speculation-and-vacancy-tax


Vancouver Empty Homes Tax


  • The City of Vancouver Empty Home Tax "EHT" became effective January 1, 2017. The Empty Home Tax is applied annually with the first taxation year beginning January 1, 2017. The tax for 2017 was payable by April 2018. The tax rate is 1% of the assessed value based on the assessment in the year the tax is paid. For 2019 the tax if applicable will be due by April 12, 2019.

  • The EHT does not apply to a home used as a principal residence or is subject to a long term tenancy agreement of at least 180 days accrued in a calendar year with a minimum of 30 day terms for the tenancies.

  • There are various exemptions for the EHT for situations such as major renovations, major illness, death of the owner, ownership of the property changed curing the previous year, strata rental restrictions that were in place prior to November 16, 2016, homes used for work orders, homes subject to a court order. Explanations for these can be found on the City of Vancouver website https://vancouver.ca/home-property-development/will-your-home-be-taxed.aspx
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The data relating to real estate on this website comes in part from the MLS® Reciprocity program of either the Real Estate Board of Greater Vancouver (REBGV), the Fraser Valley Real Estate Board (FVREB) or the Chilliwack and District Real Estate Board (CADREB). Real estate listings held by participating real estate firms are marked with the MLS® logo and detailed information about the listing includes the name of the listing agent. This representation is based in whole or part on data generated by either the REBGV, the FVREB or the CADREB which assumes no responsibility for its accuracy. The materials contained on this page may not be reproduced without the express written consent of either the REBGV, the FVREB or the CADREB.