During our fifteen years of experience in the housing financing industry, we have seen many trends and heard many rumours about the housing market. In most recent years, however, these rumours seem to have been played up in the media to the extent that many people believe them to be fact. In my blog today, I would like to take the opportunity to dispel these rumours, and provide some facts that may help shed some light on the current housing market.
Rumours and thoughts about the housing market and mortgage trends
During our seventeen years of experience in the housing financing industry we have seen many trends and heard many rumours about the housing market. In most recent years, however, these rumours seem to have been played up in the media to the extent that many people believe them to be fact. In my blog today, I would like to take the opportunity to dispel these rumours, and provide some facts that may help shed some light on the current housing market.
Rumour 1 – ‘Housing bubble’ will burst
Recently, some of our clients in Vancouver and Toronto put their plans to buy a house on hold. Others decided to put their house up for sale hoping to benefit from the market before it crashes. After selling, they plan on postponing the purchase of a new house until the market drops to a really low level.
Those clients share in the predictions that have been amplified by the news for the last 14 years that the ‘housing bubble’ would burst any time soon and the housing market in the two big cities is going to crash.
The opinion that is constantly communicated in the news is that the price of houses in Vancouver and Toronto will drop drastically because not many people can afford their houses in this current climate of high prices, high mortgage rates, strict mortgage rules and the stress test enforced by the federal government.
Rumour 2 – The rumour about being declined for a mortgage on current house
According to the circulating rrumours/predictions some house owners will not be able to renew their mortgages, as they won’t pass the stress test and they will be forced to sell. Houses for sale will stand in the market for a long time and will be sold at a loss as less and less buyers are approved to get a mortgage.
Rumour 3 – Rate hikes will play a part in crashing the housing market
The same people argue the point that an increase in rates will be a major contributor to a low housing market. The on-going increase in the mortgage rates both variable and fixed, taking it from the 2.5% area to 3.7% and even past the 4% shrinks the approval ratios to a new low. The same forecasters would say rates might soon go to 6%+ and add its weight in crashing the housing market.
Rumour 4 – Foreign taxes crashes the market further
The cherry on top of this cake are the two high foreign taxes that were introduced in B.C. and in Toronto. These taxes certainly contributed their share in the change that took place in the housing market. Foreign investors are pushed away from the big cities. We, of Sneg mortgagee Team, who work across Canada, can see how other cities like Ottawa and Montreal show a rapid rise in house prices as investors prefer to go there. Imagine paying a property transfer tax of $20,000 on a $600,000 Montreal house instead of $120,000 in tax on a house in Vancouver. Also, not needing to pay a $12,0000 vacancy tax on a house you live in 3 months a year. Yes, an extra $100,000 (+$12,000) may be a very good reason to go to new investments destinations.
As we can see all rumours listed above portray a very disturbing picture.
Now, for some perspective on the housing market.
Do I really think the housing market it to crash? Answer: No
Here are my thoughts. First let’s touch on some facts.
Firstly, housing market and mortgage owners.
Clients in good standing who pay their mortgage on time and who wish to renew an existing mortgage with their current lender, won’t be asked to pass the stress test. They are protected. They won’t need to sell their house when it is time for renewal and the housing market won’t be flooded with long-standing houses waiting to be sold. We can also see that only people who have to sell their house will enter the market. The others prefer to wait. It creates a low inventory situation rather than a major decrease in houses prices.
Secondly, predictions about rates and how this will influence the housing market
For over two years now, we have been communicating that rate hikes were not correlated with an improvement in the economy, Canadian employment or a decreased inflation. The Government was the one to monitor and increase the rates to make us believe that economy is improving, regardless of the real situation. The recent rate decreases back to of 3.2% (or less) matching the bond trends, are an indication that rates were increased only by a government decision and not as a real by-product of the economy. Once rates are moderate more buyers will be approved for a mortgage and will feel safer to enter the housing market.
Thirdly, what about mortgage regulation, the stress test etc. Wasn’t this a big hit to the housing market?
Mortgage regulations came into the picture because of a new government policy that wanted to promote homeownership affordability. The intentions were good, the application, not so much. The effect was devastating. Many hard-working Canadians could not afford to buy a house and became subject to increasing rent costs. This severely damaged the Canadian economy. Apparently almost 30% of the Canadian economy relates to the housing market, this is not limited to banks, mortgage industry or realtors but also developers, electricians’ plumbers, all trades and much more. Recently we hear rumours that a quick fix is approaching: the stress test might be lifted, going down by 1% and the amortization for insured mortgages will go up to 30years allowing much more applicants to get the desired mortgage and buy their house. See? The same way those regulations came in, by a government decision, they can go away. And keep in mind it’s an election year, there is a good chance that the government may relax its measures to get more voters.
So, what is our recommendation?
Since housing prices dropped and rates are back to normal, we have the perfect timing to upgrade or purchase a second house. Don’t wait for to government announce the new regulations, once it happens, the demand will increase and the housing market will go up again. Act today and take advantage on the housing market to maximize your gain.