Many, if not most, first-time buyers will experience a steep decline in housing affordability on October 17. New rules introduced by the Federal Government will cause the sharpest drop in the purchasing power of low equity home buyers in years. At a time when housing affordability is a critical issue, deliberately chopping millennials’ purchasing power by as much as 20 per cent will only exacerbate a well-known problem.

Under current rules, insured mortgages with variable rates and fixed terms under five years require home buyers to qualify at the five-year benchmark rate. However, if a borrower opts for a five-year or more fixed term, the borrower can qualify at his or her negotiated, discounted rate instead of the higher benchmark rate. This has long been a fixture of the Canadian mortgage market. As of October 17, 2016, ALL home buyers securing a high-ratio mortgage must qualify at the five-year benchmark rate, even if they have negotiated a lower five-year fixed term rate with their lender.

The low interest rate environment has benefited home buyers and sellers for many years, with all but the least credit-worthy borrowers negotiating a contract rate significantly lower than the benchmark rate. Now, even the most credit conscious households face a dramatic reduction in their purchasing power. For example:


  •   A family with an annual household income of $80,000 and a 5 per cent down payment will see their purchasing power fall from $505,000 to $405,000 (-$100,000).i

  •   An individual with an annual income of $60,000 and a 5 per cent down payment will experience a reduction of purchasing power from $380,000 to $305,000 (-$75,000).

  •   A household earning $120,000 per year and a 10 per cent down payment will see a reduction in purchasing power from $803,000 to $651,000 (-$152,000).

    We expect this policy to have the following impacts:

  1. Housing demand will slow as millennials, other first-time and early move-up buyers are squeezed out of the market.

  2. This reduction in demand may cause imbalances and declining prices across some product types in some communities. In addition, new home construction activity will lag along with related employment and economic growth.

  3. Pent-up demand will intensify, contributing to another cycle of rapidly rising prices in the future as financially retrenched millennials buy up an undersupplied housing stock.

Source from: Cameron Muir, Chief Economist Brendon Ogmundson, Economist cmuir@bcrea.bc.ca; 604.742.2780 bogmundson@bcrea.bc.ca; 604.742.2796 

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Vancouver

In the Vancouver Westside, there were 62 sales of detached homes and 699 active listings at the end of September. The benchmark sale price was $3,624,300, with an average days on market of 31. The hottest market for sales was Dunbar with 12 sales.

In comparison, the condo market had 331 sales, 931 active listings and a benchmark sale price of $683,200 with 21 average days on market. The hottest market for sales was Downtown VW, 69 sales.

Townhome sales were 31, active listings were 113. The benchmark sale price was $1,116,300 with an average days on market of 17. Fairview VW with 10 sales was the hottest market in September.

It’s a buyer’s market for single family homes.


Source from Macrealty.com


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BC Budget 2016

The BC government introduced its 2016 budget today. The budget included a number of items intended to affect affordability and availability in the Lower Mainland’s housing market. Here’s a summary:

Property Transfer Tax (PTT)
• a New Housing exemption will apply to newly built homes or newly subdivided units priced up to $750,000, saving buyers up to $13,000; and
• a partial exemption will apply on newly built homes priced $750,000 to $800,000.
• a new 3% PTT rate will apply to the portion of a home sale that exceeds $2 million. For homes that sell for below $2 million, the PTT will continue to apply at a rate of 1% on the first $200,000 and 2% on the balance. 
These changes will take effect on February 17, 2016. 

Data collection
Starting this summer, individuals and corporations buying property must disclose if they are Canadian citizens or permanent residents of Canada and if neither, their home country. These changes will provide information on the volume of foreign investment in BC. 

Home Owner Grant
The Home Owner Grant threshold will increase to $1.2 million from $1.1 million for the 2016 tax year.

Affordable housing
The province will invest $355 million to help the BC Housing Management Commission support more than 2,000 affordable housing units for residents with low-to-moderate incomes. ​
*Source from real estate board of greater Vancouver*
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