Rating the Top 5 impacts
A number of significant changes have been imposed on the real estate industry in recent months, both nationally and locally. Combined, these changes can and will have a significant impact on market conditions in the GVRD and will effect sellers, buyers and investors in different ways. Following is a highlight summary of the recent changes, a rating of their impact and a commentary on how it will affect the outlook for real estate in BC in 2017.
1) “Stress Test” - Threshold increase for mortgage qualification – Rating = Negative
Implemented in late 2016, this federally driven increase means that although interest rates remain at historical lows, the interest rate at which a borrower is qualified for a new mortgage is higher – typically by at least several percentage points. Unfortunately what that translates to for the borrower is their maximum loan amount will be for less than if they were qualified at a lower interest rate.
Of course rates will go up eventually and it is prudent to ensure that marginal buyers do not jeopardize the overall market as rates rise, but the net effect of this policy is very short sighted because it makes it that much harder for a first time buyer, particularly in high priced markets like Vancouver, to enter the market. This has a cascading effect because folks already in the market in a starter home, can’t find lower priced buyers to sell to so they can leverage up & buy a bigger place, and so people stay put and make do with less, contributing to an already very tight inventory supply situation.
Personally, I believe we need more diversity in real estate inventory and options – not less choice for buyers, or more options for the wealthy only. For more information:
2) BC HOME PARTNERSHIP LOAN for first time buyers - Rating= Neural
This program is a new initiative of the BC provincial government, designed to help first time buyers achieve a minimum 5% down payment by matching existing saved funds with a repayable assistance loan to purchase a home with a price of up to $750k. First time buyers must meet a number of eligibility requirements and be preapproved by a lender. For more information: https://www.bchousing.org/housing-assistance/bc-home-partnership
3) CMHC rate increase – Rating = Negative for first timers and low income borrowers
As of March 17th of this year, the federally governed CMHC will hike their rates for the second time in as many years. For those applying for a high ratio mortgage (anyone with a down payment of less than 20%), borrowers are required to pay mortgage insurance – not as a benefit to them but to insure against defaulted loans. For more information:
4) Foreign buyers tax – Rating = Neutral
Introduced by the BC government in mid-summer 2016, this additional property tax of 15% imposed on non-residents was implemented to help cool the perceived high demand for properties particularly single family dwellings from foreign buyers, which was thought to have contributed to a significant rise in house prices in 2015/2016.
There is not enough data to truly understand the impact of foreign ownership, but supply is a much bigger issue.
For more information: http://www2.gov.bc.ca/assets/gov/taxes/property-taxes/property-transfer-tax/forms-publications/is-006-additional-property-transfer-tax-foreign-entities-vancouver.pdf
5) BC homeowner grant threshold increased – Rating = Neutral
In a possible effort to soften the significant hike in 2017 property taxes, the BC government announced in January that the threshold to qualify for the BC homeowner grant was raised to $1.6M, up from $1.2M in 2016.
This increase is a welcome relief for many homeowners already struggling with the high cost of real estate prices in the lower mainland and makes a lot of sense, however it may have an unintended negative impact. While supporting people (particularly the elderly) to live in their home for as long as possible is a good thing, it could slow down and delay the flow of new available inventory further, contributing to an already very tight supply status which continues to create upward pressure on prices. Additionally, any equity which may have been used when the home was sold to help the younger generation – is also potentially delayed. For more information: http://vancouver.ca/home-property-development/are-you-eligible.aspx
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SUMMARY – direction for 2017
Overall, the combined effect of these changes has correlated to a cooling effect in the market, and various experts are indicating that we will likely see (and are already seeing) a downward effect on pricing – which some would argue is long overdue. While sellers may understandably not feel kindly towards this state of affairs, this could improve affordability and create a long overdue opportunity for buyers, which would be a welcome reprieve from previous double-digit increase years.
I am always happy to assist buyers, sellers and investors with their real estate goals! Please contact me anytime to discuss your interests.