January 2018 Real Estate Update

Speculation continues that the increases to interest rates and changes to the mortgage rules will result in relief from the booming real estate market. However, for another month, prices rose, and sales increased across almost all major markets in the province. The changes to the mortgage rules have resulted in almost 20% more mortgages being rejected by the major banks; these rejected borrowers are increasingly turning to alternative lenders, including mortgage investment corporations, credit unions, and private lenders all of which are not subject to the same guidelines as the big banks. Some credit unions, despite being outside the scope of the new mortgage regulations, are implementing the guidelines anyway.

IN THE NEWS

The revised mortgage rules implemented in January may have some unwanted results. Mortgage brokers report as much as a 20% increase in the number of rejections of new mortgages from the large banks. The unwanted result is that some of these borrowers are looking to unregulated alternative lenders. These alternative lenders, including private lenders, mortgage investment corporations and credit unions, can charge significantly higher interest rates but are beyond the reach of the Office of the Superintendent of Financial Institutions’ new stricter lending requirements.

Canada’s housing market is expected to cool as a result of the tougher rules on mortgage lending and expected increases to the Bank of Canada overnight rate. A recent poll conducted by Reuters of industry analysts suggests that home prices are expected to rise by only 1.9%, significantly less than the 8.5% gain of 2017. The analysts indicated that the higher-priced markets of Vancouver and Toronto are likely to see the biggest impacts.

Vancouver’s real estate market remained stable in January, home prices rose slightly, while sales fell by almost 10% compared to December, 2017. Apartments and condominiums were responsible for the overall increase in home prices, with detached home prices falling slightly compared to last month. Jill Oudil, the Real Estate Board of Greater Vancouver president, says that demand remains high and listings scarce in the attached home and apartment markets across the Metro Vancouver area.

Average Vancouver homeowners are likely to find themselves paying almost $800 more per year to service a mortgage if they obtained one recently. The Mortgage Group estimates that each quarter of a percentage point increase adds about $13/month for every $100,000 borrowed. The increase comes at a time when British Columbians feel they weren’t ready for it. A recent MNP Debt survey shows that almost one third of B.C. residents were worried that they would have financial trouble if interest rates went up. Over a quarter of respondents in the same survey indicated that they were worried about an interest rate increase, an increase of four points from a similar survey in September 2017.