I trust you’re having an amazing summer! Just like our continued amazing weather, Vancouver’s Real Estate market keeps operating at a healthy pace. Last month saw 2,960 sales at the Greater Vancouver Real Estate Board. This figure is just above the 10year average for the month of July.
While the number of sales are trending down towards historic levels buyer demand remains high with fewer listings. This is especially true in the condo market where the sales-to-active-listing ratio was 62% last month. For reference, when this ratio is less than 12% for a sustained period prices trend downward. When the ratio exceeds 20% for a sustained period we see an upward trend in prices. By comparison, detached homes sales-to-active-listing ratio was 16.9%, and 44.9% for townhomes. Strata properties continue to dominate our market while the single-family home segment has moved into balance.
Top of mind for our team last week was the 6 proposed changes by Office of the Superintendent of Financial Institutions (OSFI). OSFI regulates all Federal lenders. You may recall from a previous blog that OSFI has proposed six amendments to the existing B-20 Legislation. These amendments would tighten up conventional, non-insured lending, by implementing new measures such as:
A stress test for conventional lending – The would have borrowers qualifying for financing at an interest rate that’s 2% higher than their actual contract rate.
Lenders to adjust maximum Loan to Value Ratio in overheated Markets – This is designed to make qualification tougher in Vancouver and Toronto.
Add a “Purpose of Loan” risk factor – Additional requirements would come into play based on the intended use. Categories such as purchase, refinance, owner occupied, and rental would have specific risk factors applied.
Mortgage Bundling Prohibition – This would eliminate combined 1st and 2nd mortgages where the Total Loan amount exceeds a lenders Recommended Mortgage Underwriting Practices. Under current rules, Federally Regulated lenders can lend apply more flexible guidelines when lending to a maximum of 65% financing. This lets certain lenders allow a concurrent 2nd mortgage as a top-up. The proposed amendment would eliminate the ability to top up.
Corporations with Residential Mortgages – The would change terminology from “individual” to “borrower” and could resolve the difficulties in issuing residential loans to corporations or other legal entities.
Counter Party Servicing Risk – This proposed amendment would require additional diligence by Federally Regulated Lenders who acquire, aggregate or participate in Bank sponsored conduit lending.
The deadline for responses to the proposed amendments was August 17th. Team RRP, along with other industry stakeholders, have responded. As debt is being viewed as one of the greatest risks to our economy, lending remains firmly under the microscope of government and regulators. We expect some of these proposals will be watered down after industry input is received. There is no doubt that conventional, uninsured lending will be more challenging when B-20 is amended. If you are expecting to require a conventional mortgage, we suggest you keep these changes in mind as they will make obtaining a conventional mortgage even harder.
What the government will do to slow housing
OSFI’s actions lead us to conclude that the government will continue to slow housing through monetary policy. With the energy sector idling, housing has become Canada’s leading economic driver. The Catch 22 for the government is how to slow rising debt levels and stabilize our housing market without collapsing our economy. The usual tools, such as adjusting the overnight rate, are too blunt given the currently elevated levels of debt. We believe the government will continue to adjust monetary policy to slow housing and, in turn, our broader economy. This will leave room for the Bank of Canada to raise rates more slowly than the US and keep our dollar attractive for exports to buffer what analysts expect to be a slowing economy in 2018 and 2019. Based on these observations we expect interest rates to remain near current levels and rise very slowly.
For our best available rates OAC click here. Have a great week, and thanks again for your amazing support!