With the recent implementation of the qualification stress test on non-insured mortgages and slowly increasing interest rates, we are being asked by some clients if it makes sense to hold off purchasing. With headwinds of tougher qualification and rising rates, surely prices will fall? So far in 2018, the answer has been no.
So why aren’t prices falling in Metro Vancouver? There are several reasons:
Our market is segmented
Our region is diverse when it comes to property types and location. Last month there were 1012 Condo apartment sales, representing a 22.7% increase compared to January 2017. Townhouses were also a popular choice for move-up buyers. January’s 319 T/House sales represent a 25.6% increase compared to January 2017. Single-family detached sales remain healthy with 487 sales reported last month. This is a 9.7% increase from January 2017. In order for prices to fall across all segments there would need to be a sustained shock for a long period of time (6 months or more), across all sectors to push prices down. Home values are sticky with most sellers opting to cancel their listings and ride out a price drop.
More Demand Than Supply
BC’s population growth is forecast to be 1.3% this year with approximately 35,000 people coming to the GVRD. This means we need 17,000 new units in order to meet current demand. The most recent statistics I reviewed from CMHC forecast 22,000 housing starts in the GVRD this year. Drilling down I expect these starts will do little to not satiate current demand. The reason is these new condos start to represent a 2-3 year lag and are usually pre-sold. As such developers of new projects and local governments are playing catch-up.
The Rental Market Remains Challenging
One of the unintended consequences of tougher mortgage qualification is future homeowners staying in the rental market longer. With a longer rent cycle to save additional down payment or establish a higher paying job to meet tougher mortgage qualification, we are seeing vacancy rates in Metro Vancouver remain below 1%. With demand outstripping rental supply, rental costs are also rising. There have been announcements at all levels of government to re-enter the rental market, but it will take time for these government projects to make an impact and stabilize rental demand.
Low Unemployment Rate
As of December 2017, BC leads Canada with an unemployment rate of 4.6%. Employment fuels Intra-Provincial migration, and a healthy economy boosts consumer confidence. Confidence and low unemployment translate to a robust housing market.
Parents and Grandparents are getting creative in helping their kids enter the market. The most common way has been with gifted down payment. This can be done in one of three ways:
Cash gift from savings
Borrowed Gift – Parents/Grandparents borrow from a Secured Line of Credit against their home and gift these funds to their kids/grand-kids
Borrowed Gift from a Reverse Mortgage – Parents/Grandparents take a CHIP Reverse Mortgage for a lump sum to help kids/grand-kids.
The advantage of a CHIP is there are no mortgage payments to be made.
While it’s true housing in Vancouver is facing some headwinds, other factors provide solid reasons for housing to remain robust this year. This is especially true in the strata market where the gap between mortgage payments and paying rent continues to narrow.
If you know of someone who is currently renting or is curious how they can enter the housing market, we’d love to hear from them!
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