We trust this finds you well and that you’re enjoying our warmer weather. The mortgage and real estate markets have been strong with May sales numbers reflecting a strong rebound of 4,364 sales. This is an increase in of 22.8% from April’s numbers and represents the third highest May on record! Strata sales continue to dominate with single family sales notable but no longer the driving force in our markets. What we find interesting is since the introduction of new mortgage rules last fall is how financing availability has further defined our two-tier markets of under $1.0M and over $1.0M. Here’s how it looks today;
Financing on purchases valued under $1.0M
We have a large selection of lenders offering insured and insurable programs at best rates.
Many strata sales are still below $1.0M in the greater Vancouver area with local and provincial governments having supported creation of housing supply through tax incentives such as BC Home Second Mortgage Program to match down payment and PTT exemptions for new construction.
Minimum down payment of 5% exists to $500k and 10% down for the balance.
Access to these government programs and a large pool of lenders competing for these clients at attractive interest rates is one of the main reasons we feel the strata market is so hot right now.
The large gap in value between Strata properties and single family homes has narrowed this Spring.
Financing on purchases over $1.0M
We have fewer lenders to draw from as any purchase over $1.0M must be arranged by a balance sheet lender such as a Bank or Credit Union.
Financing is much more challenging as balance sheet lenders are regulated by the same folks who are trying to stabilize the housing market through tougher borrower qualification.
These lenders are under intense scrutiny to satisfy OSFI requirements especially in Canada’s hottest markets of Vancouver and Toronto.
What we’re observing with our higher end clients is a transition where common sense lending from a few years ago no longer applies.
This means some borrowers who are tax efficient are no longer able to access low rate bank financing which is slowing the higher end markets along with punitive tax measures.
Tighter qualification standards by regulators has fueled alternative and private lenders who bridge the common-sense gap mainly in the $1.0M plus category. The alternative lending segment has been the focus of media and Bank of Canada attention since the devastating run of Home Capital. You may recall that Home Trust and their parent Home Capital had a run on their investment portfolio after the Ontario Securities Commission alleged Home Capital had misled investors in their handling of falsified loan applications. This action started a waterfall event bringing into question the health of the entire Canadian Mortgage Market with fears Home Trust, Like Lehman Brothers was the trigger to our very own housing crisis. As a follow-up to the Fraud allegations the Financial Services Commission of Ontario (FSCO) investigated the 45 Ontario mortgage brokers Home Trust had cut ties with and has cleared 43 of the 45 of fraud allegations. Home Trust are back to work after stabilizing their portfolio but the media and regulatory lens remains firmly on this sector. There seems to be a broad misconception that alternative lenders pose more risk to the economy as they aren’t federally regulated or insured. In BC, Private lending and capital raising are regulated through FICOM and BCSC with governance and market conduct standards.
On the economic front, we are waiting to see what happens when the BC Legislature convenes on June 22nd. Lingering issues such as nominating the speaker of the house and a non-confidence vote to defeat the BC Liberals are expected to dominate political headlines. From a stability perspective, there are concerns about the NDP / Green alliance proposal to add additional real estate related punitive taxes and fees. Our concern is these measures will do little to address supply needed to meet demand. A friend once told me “never underestimate the value of stability as nothing thrives in instability.” We’ll keep you posted on any changes! Having lived and worked through various political leaders at the helm of BC for the last 24 years, our standard of living and the province’s beauty have always attracted people here so I’m confident the market will adjust and carry on once the ruling party policies become clear.
On the good news front the Canadian economy added 55,000 jobs last month for a total of 317,000 jobs created since last year. The participation rate is also improving with more people looking for work which helps explain the uptick in Canadian unemployment to 6.6%. Job gains were mostly attributed to Ontario, Quebec and BC. BC’s unemployment rate remains one of the country’s lowest at 5.5%. On the interest rate front, 5 year Bank of Canada bond yields increased slightly on the positive employment news but interest rates remain unchanged. We don’t expect any interest rate changes for the rest of the year for the following reasons;
Ongoing issues south of the border include weaker than expected Q1 and non-farm payroll growth, and troubles with the new administration in delivering meaningful change.
The UK election and minority government may help expedite Brexit as the Labour party are pro free trade with the EU. This process will take time.
The EU economy is recovering and expanding but continued debt overhang is likely to keep inflation muted.
Market reaction to US and UK & European news have resulted in a slow downward trend in bond yields over the last few months.
Have a fabulous week, and thanks again for your amazing support!