First of all, I want to wish everyone out there a Happy New Year. 2016 was an interesting year, with many twists and turns for the real estate market in the Greater Vancouver Area. Mortgage brokers like myself are still trying to get our bearings after being spun in so many circles.
Recap of the past year – The good
Until July, there was an insane level of activity on the market, with prices increasing at unsustainable rates and pricing affordability going out the window. Then the foreign buyer’s tax came into place in the lower mainland, and despite being told that foreign buyers are not the cause of unreasonable home values, sales instantly decreased by 30%. This was a change that, as an actual resident of Vancouver, that I thought was an excellent policy decision.
Shortly after the foreign buyer’s tax was introduced, the newly elected federal government made one of the most unbalanced, short sighted and bone-headed decisions that we have seen from a government in a decade. It was enough to make the previous governments decisions look tame, and even those decisions I did not like. For a government that is supposed to be more for the less wealthy and middle class, the newly implemented requirement to qualify all 5 year fixed rate insured mortgages at the benchmark rate only hurt lower and middle class Canadians, and has given distinct advantages to chartered banks and decreased choice of lenders for Canadians and increased the costs of borrowing. It also caused a decrease in mortgage qualifications by 20% for all insured mortgages.
Then I also found out that another, less discussed bank policy change was to increase lender capital reserve requirements from 5% to 9%. I am not as familiar about whether this was necessary or not, but I have a feeling it was another unnecessary policy decision from the federal government, and one that also resulted in a spike in interest rates.
The BC government unveiled a program to provide up to 5% down-payment in the form of a second mortgage that would be interest free for 5 years, after which it would be required to pay interest or pay off. The government will match, dollar-for-dollar, each dollar of down-payment up to a maximum of $37,500 on a $750,000 home.
For those with less than 5% down, this could POTENTIALLY help them get into a home. I cannot say definitively yet though as we are waiting for more word about how mortgage lenders will implement the policies on this. However, it is unlikely to make it substantially easier for people to qualify for a home or to buy much more house than they could before.
However, at this moment in time, it appears to be a flashy program that gives the impression of doing a lot for home buyers while not really doing much of anything except getting voters excited in an election year.
What is to come in 2017?
I will be damned if I know…just kidding. I mean I really don’t know, but I think I can give it a good guess.
Lenders will adjust to the new regulations
Mortgage lenders were blindsided by the new federal government regulations (the bad) and were not given much time to adjust, but it appears that they will be doing so, and some have already done so in a way to make themselves more competitive in keeping pre-approval amounts at previous levels.
The market will adjust to the new regulations
I believe that the market has already done most of the adjustment to the new (bad) regulations, but I think it is quite possible to see a flat or slightly declining market in 2017. I do not believe that the prices will go down substantially though.
It will get more difficult to get a mortgage
Since 2008, this has been a consistent trend in mortgage lending. The paranoia of the US housing market crash is alive and well, and is influencing policies substantially to this day. I believe a really great housing market will be one where the poor and middle class have an easier time to buy, and the wealthy are not given “corporate welfare” as it were, by not being subject to established lending criteria. That is not what is happening here in Canada. The powers that be appear to be covering their butts by “not doing bad” as opposed to “doing good.” Doing good is risky because it involves creating something new and positive for home buyers. Not doing bad is safe, because it helps to ensure lower risk and with lower risk comes less expense and job security. I think that one day, this might change, but I do not expect that it will be this year.
With lending being more difficult now than ever, and the real possibility of it being even more difficult this year, wouldn’t it be a good idea to work with a professional that has many different options instead of a professional who only has one option? Mortgage brokers have many more options available that chartered banks do not have. We represent the borrower and look out for their best interests, in contrast to a bank employee who only represents their bank. We also have tangible product advantages with our lenders that can save borrowers many thousands of dollars. Talk to your local mortgage broker to find out your options.