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Condo market still hot despite new mortgage rules

REBGV president Jill Oudil said “Demand remains elevated and listings scarce in the attached and apartment markets across Metro Vancouver,” in the Feb 2, 2018 stats report. Read full report here: Home buyer demand depends on property type

We can see the buyer demand and seller supply from the sales-to-active ratios:

  • Sales-to-active listings ratio for Jan2018 was 26.2% for all property types (upward pressure on price if ratio remained 20% for sustained period – which has been the case since March 2015)
  • Sales-to-active listings ratio for different property types in November:
    • 11.6% for detached homes (downward pressure on price if remained below 12% for sustained period of time)
    • 32.8% for townhomes (seller’s market – upward pressure on price)
    • 57.2% for apartments (seller’s market – upward pressure on price)

In today’s market, if you are buying single family houses, there are less competition and more selection in homes. House buyers have more luxury to pick and choose and negotiate the price. If you are in the market today to buy condos, get ready for multiple offers! For condo buyers, you have to have your financing and emotions ready.

So all this talks about statistics and ratios, what most people want to know is still the price. Will it go up or will it come down? Sellers want the price to go up and buyers want the price to go down.  So here’s a comparison of two charts, the first chart is the Sales to Actives ratio that tells the supply and demand of homes. The second chart is the MLS HPI price that measures typical, pure price change.

Both charts started with data in 2005. Thirteen years of data is a long enough time frame to see the general trend. Looking at the charts we can see ups and downs in the ratios or supply and demand over the years. But when we look at the home price, there trend is generally an upward trend. Although there was a dip around 2009 when the financial market crashed in the US, the price recovered the next year. Then we see several years of flattening or slowly increasing in price before the price shot up again.

No wonder people say, don’t wait to buy real estate, buy real estate and wait.

In January, typically a slow month, we sold a condo for $54,000 over asking price in a multiple offers situation. The unit sold for $29,000 more than a similar unit which was sold just one week ago. The condo market is still hot depsite the new mortgage rule with more stringent stress test for borrowers that came into effect this January.

According to Residential Mortgage Quarterly Review by First national Financial LP, the new rules have the Canadian Real Estate Association forecasting a slowdown in home sales in Canada. None the less, it expects to see prices rise in Quebec, New Brunswick and Nova Scotia. The energy dependent provinces Alberta, Saskatchewan and Newfoundland and Labrador are expected to see no movement or slight declines.

But for British Columbia, the price are expected to hold steady. Read full article here.

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The Real Estate Board of Greater Vancouver released its monthly stats report today

Metro Vancouver continues to experience above-average demand and below-average supply

In the report, REBGV president Jill Oudil said: “We’re seeing steady demand in today’s market. Home buyer activity is operating above our long-term averages, particularly in our townhome and condominium markets.” “While we’re seeing more listings enter the market today than we saw at this time last year, we have a long way to go before our home listing inventory rises back to more historically typical levels.”

We can see the buyer demand and seller supply from the sales-to-active ratios:

  • Sales-to-active listings ratio for November 2017 was 32% for all property types (upward pressure on price if ratio remained 20% for sustained period – which has been the case since March 2015)
  • Sales-to-active listings ratio for different property types in November:
    • 16% for detached homes (balanced supply and demand when ratio between 12-20%)
    • 36% for townhomes (seller’s market – upward pressure on price)
    • 68% for apartments (seller’s market – upward pressure on price)

The sales to active ratio for all property types in Greater Vancouver had remained above 20% since March 2015, putting upward pressure on home prices (see graph below):

As a result, home prices have been increasing since March 2015 when the Sales-to-Active ratio has reached above 20% for sustained period of time. Below is a 5 year graph of the HPI benchmarks which represent the price of a typical property within Greater Vancouver:

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Canadian Mortgage and Housing Corporation’s outlook on the housing market

CMHC has released its latest Housing Market Outlook which is released annually at the beginning of the fourth quarter and looks ahead over the next two years.

In general CMHC sees a stable, but slowing housing market.

Housing starts are expected to decline over the next two years as the economy strengthens and the Bank of Canada withdraws stimulus – that is, interest rates continue to rise.

CMHC is forecasting posted, 5-year mortgage rates of 4.9% to 5.7% next year and 5.2% to 6.2% in 2019.  That is an increase of as much as 160 bps over the time horizon of the outlook.

Existing home sales are forecast to drop.  This should be no surprise given the record setting pace of sales through 2016 and early 2017.  As well, the pace of price increases is expected to slow down.

CMHC predicts the national average price for a home should fall somewhere between $494,000 and $511,000 this year.  In 2019 the range is expected to be between $499,000 and $524,500.

CMHC is also forecasting ongoing growth for GDP, employment and immigration.  But the agency expects consumer spending to decline as interest rates increase.

To download the report, click here

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October 2017 home sales were 15% above the 10-year October sales average.

Sales-to-active listings ratio for September 2017 was 33.1% for all property types

Sales-to-active listings ratio for different property types:

  • 16.8% for detached homes (balanced supply and demand)
  • 44.8% for townhomes (seller’s market – upward pressure on price)
  • 66% for apartments (seller’s market – upward pressure on price)

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REBGV president Jill Oudil reported: “Conditions continue to vary significantly based on property type. The detached home market is well supplied with homes for sale, which is relieving pressure on prices. It remains a much different story in the townhouse and apartment markets. Buyers of these properties continue to have limited supply to choose from and are seeing upward pressure on prices.”

“The growth in our provincial economy and job market is contributing to today’s demand,” Oudil said. “The federal government’s announcement of plans to tighten mortgage requirements for the seventh time in the last eight years also helped spur activity in the short term. Many buyers are trying to enter the market before the changes are in place.”

Click here for full report

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New controversial mortgage stress test

The biggest news in real estate this past month is no doubt the controversial mortgage stress test.

It will be aimed at people with heavier debt loads and at least 20% equity. Given where Canada’s home prices and debt levels are, this is easily the most potent mortgage rule change of all time.

It’s like a two-point rate hike: Uninsured borrowers can qualify for a mortgage today at five-year fixed rates as low as 2.97%. At the beginning of next year, that hurdle will soar to almost 5%. Meaning, you could need upward of 20% more income to qualify for the same mortgage that you could get today.

The Office of the Superintendent of Financial Institutions (OSFI) said this change will make sure people can afford much higher rates and it will substantially increase the quality of borrowers at Canada’s banks. OSFI argues that this will insulate our banking system from economic shocks.

In a Globe and Mail article, critics say this new mortgage stress test will push borrowers to riskier lenders, click here to read the article.

Many questions were raised:

  • Whether this was all necessary, given already slowing home prices, provincial rule tightening, rising rates and the fact that uninsured default rates are considerably lower than for people with less than 20% equity.
  • Does growing debt risk in the non-prime mortgage market, combined with home price risk and a potential drop in employment and consumer spending truly lower banks’ risk?

Industry economists like Will Dunning said scores of borrowers will be forced to defer buying, pay higher rates, find a co-borrower and/or put more money down to qualify for a mortgage. Click here to see the video.

OSFI says its responsibility is to keep banks safe and sound. Overly concerning itself with the side effects of its mortgage stress test is not its mandate.

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October 2017 Real Estate Market Update

Home buyer demand continues to differ based on housing type

Click on the above to read the News Release from the Real Estate Board of Greater Vancouver. Summary below:

  • August 2017 home sales were 20% higher than the 10-year August sales average.
  • September 2017 home sales were 13% above the 10-year September sales average.
  • Sales-to-active listings ratio for August 2017 was 35% for all property types
  • Sales-to-active listings ratio for September 2017 was 30% for all property types
  • Sales-to-active listings ratio for September 2017:
    • 14.6% detached homes (balanced market – slowed upward pressure on price)
    • 42.3% for townhomes (seller’s market – upward pressure on price)
    • 60.4% for apartments (seller’s market – upward pressure on price)

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Buyer demand continues for Townhomes and Apartment condos. We find the demand for single family home is still there, especially for homes that were well priced.

Since it’s rapid increase this January, we are seeing the Sales-to-Active ratios (for all property types) started to decrease after reaching its peak so far this year in May 2017 (see graph below).

The HPI benchmark price for all property types in Greater Vancouver continued to rise, although at a slower rate, since the ratio remained in the seller’s market.

According to First National Financial LP “Market watchers appear to be taking the same “wait-and-see” approach to interest rate hikes as the Bank of Canada” Read full article here. Summary below:

  • Economic data that support further interest rate increase:
    • Employment numbers show 10th straight month for gains
    • Wage growth popped up by 2.2% in September after months of sluggish growth. Hourly average wage reaching $26.36.
  • The two key factors that support “wait-and-see” approach:
    • July GDP was flat which forecast a slowing for 2nd half of the year
    • Household debt remained a concern and a determining factor in future rate increase.

The August GDP numbers will come out at the end of this month and they will help determine if there is a trend.

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The Bank of Canada moves forward with another rate increase

On September 6 – The Bank of Canada has raised its key interest rate by one-quarter point to 1% after having raised it to 0.75% back in July. To view the announcement – click here.

  • The Bank of Canada says the decisions were based on much higher than expected growth in Q2 GDP.
  • GDP expanded by 1.1% in the second quarter, for an annualized growth rate of 4.5%.  It was the fastest increase in growth in 15 years.
  • The growth is being fueled by consumer spending, strong job growth and low interest rates. Business investment and exports also made significant contributions.
  • In the month of June the economy was led by construction which, in turn, was led by housing – particularly condos.
  • The bank left the door wide open for another hike in 2017.  But it also said it will be watching to see how heavily indebted Canadians adjust to higher rates.

The next dates for rate announcements are October 25th and December 6th.

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August 2017 market update

“First-time home buyers have led a surge this summer in demand in our condominium and townhome markets,” Jill Oudil, REBGV president said. “Homes priced between $350,000 and $750,000 have been subject to intense competition and multiple offers across the region.”

  • August 2017 home sales increased 22% compared to same month last year. It was 20% higher than the 10-year August sales average.
  • Sales-to-active listings ratio for August 2017 was 35% for all property types or:

*16% for single family houses (balanced market)
*45% for townhouses (seller’s market)
*76% for condos (seller’s market)

Click here to view our August 2017 market update video featuring Board President Jill.

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TD Economics Data Release: Bank of Canada hikes, with more likely to come

  • The Bank of Canada met market expectations, raising its key monetary policy interest rate by 25 basis points, to 0.75%.
  • The June jobs number from Statistics Canada was the last significant economic detail to be delivered before the Bank of Canada’s interest rate announcement today. The creation of more than 45,000 new jobs was far better than forecast and continues a trend that started about a year ago. It all but guarantees there will be an increase in the central bank’s trendsetting rate. As expected, the overnight rate increased by 0.25% to 0.75%.

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REBGV June 2017 Market Update Video



Click on the image above to view our June 2017 market update video featuring Board President Jill Oudil.

Demand for condo continues to outstrip supply with a sales-to-active ratio at 93%. Detached home market has returned to Seller’s market with sales-to-active ratio at 25%.

Overall, the sales-to-active ratio has decreased over the last month but the ratio remained above 12% so we will probably not see any price reduction.

The graph below shows the average sales-to-active ratio for all property types in All of Greater Vancouver (REBGV), Richmond, Vancouver and Burnaby.

What I’ve learned from last year was that although the sales-to-active ratio had declined, the sales price did not as long as it remained above around 12%. For single family houses, the price started to drop when the ratio dipped to 13% in August 2016 before it bounced up in February 2017.

In Toronto, home sales collapsed by more than 37% in June as compared to same month last year. New listings shot up by nearly 16% but prices still increased by an average of 6.3%.