For several years I wrote a monthly real estate column for The Island Word newspaper. I became very busy, so I put the column on the back burner for a few years. With all the changes occurring in BC real estate, I asked the wonderful editor and owner of The Island Word if I could begin again, and he said yes! I have written 3 columns so far, and several people have suggested that I also publish them on my blog. So, I will post the first 3 over the next few days, and I will post subsequent columns only after they appear in print in The Island Word.
Here's the column I wrote in February 2018:
After a long hiatus, Property Lines is back! There is a lot happening in the world of real estate; many changes that will affect your ability to purchase, and influence how you purchase a property. This column will attempt to cut through the media hype, get down to reality, and fill you in about the critical issues that are making headlines.
The media is full of stories and opinion pieces about increasing prices, vacant properties, foreign ownership, and changes to mortgage qualification regulations. Surprisingly, there has been very little coverage of the impending dramatic changes to the way you can work with a real estate agent in the Province of British Columbia after March 15, 2018. There are so many changes, I will have fuel for these columns for months.
But first, let’s talk about mortgage qualification changes. The federal Office of the Superintendent of Financial Institutions’ (OFSI’s) latest qualification rules came into effect on January 1, 2018, and have been implemented nation-wide. Commonly called a ‘stress test’, they are meant to ensure home buyers do not overstretch their budgets, and commonly are thought to cool a hot real estate market and dampen prices. The ‘stress test’ mandates that anyone seeking an insured mortgage must be able to afford the mortgage payments based on the higher Bank of Canada 5 year bench-mark rate or your lender’s contract rate plus an additional 2%, rather than on the lowest interest rate you can find. Despite the media’s focus on the most recent announcement, these ‘stress test’ rules have already been in place since January 2017 for those purchasing with between 5% and 20% down payments. These mortgages are insured by CMHC or a private mortgage insurance company such as Genworth. The January 2018 regulations mean that the stress test will now apply to those with more than 20% down. This will affect approximately 10% of potential buyers. In the past, 20% equity by way of down payment was considered a large enough buffer between a property’s value and a potential drop in value that the lender was not as concerned about the home eventually being worth less than an outstanding mortgage balance. Perhaps the OSFI is anticipating a more than 20% price adjustment in the near future. Or perhaps they are concerned about the number of home owners with mortgages nearing retirement age, whose incomes will drop after retirement. The changes apply to lenders, such as banks, and do not affect credit unions and private lenders.
So why all the media fuss now? Buyers may have finally reached their maximum frustration level, and the media has picked up on that. The media is driven by what’s happening in the Big City markets like Vancouver and Toronto, and there is a desire for government to do something to cool the hot real estate prices. Certainly, predictions for the Big City markets are for a softening of prices. Combined with a housing shortage, and the great Canadian Dream of home ownership seemingly out of reach for so many, along with a perception that the market is being driven by foreign ownership (only 2 to 5 % of properties are actually foreign owned, depending on location), it seems the media has latched on to the OSFI’s latest rule changes, when in reality, many other factors have combined to bring us to the critical housing situation we now face. The result has been a little bit of buyer panic to buy before January 1. But with listing inventory (number of homes for sale) at historic lows throughout the province, will prices actually drop? Listing inventory is expected to remain low, but there are still a lot of buyers out there (better known as ‘pent up demand’). Buyers seem quite willing to spend to the maximum limit allowed under the new rules, but inventory at the price level first-time buyers can afford is so low, it is very difficult to break in to the market. Buyer expectations are also very high. Most buyers expect properties to be in excellent condition. But homes at the low end of the market often need repairs and upgrades. Usually, low inventory combined with lots of buyers adds up to a Sellers’ market and increasing prices. But Buyers in most cases are patiently waiting for the perfect property, and are beginning to resist asking prices. While Big City markets are already softening, my prediction for Vancouver Island is for prices to continue to increase, but not as dramatically as they have done this past year. But with so many Buyers still waiting to buy, and rental properties also in poor supply, we will continue to see demand and therefore increasing prices.
Check in next month to find out about changes to the Real Estate Services Act Regulations effective March 15, 2018 and how these changes will affect your ability to choose your preferred agent.
Janet Scotland is Managing Broker|Owner of CENTURY 21 Arbutus Realty, with 3 offices on Vancouver Island: Campbell River, Gold River and Courtenay. www.janetscotland.ca