Vancouver Real Estate Market News
Another Bank of Canada meeting, another decision to keep the overnight lending rate at 1% (keeping the Prime rate at 3%). No surprises here, as inflation and growth are well below their targets and unemployment rates of 7.1% Canada-wide far exceed the target of 6.5%. What did change for the first time in years was they finally gave up on hinting of future rate hikes. The Bank of Canada adjusted their targets after a weak first half of 2013, projecting 2% inflation (which would indicate a potential rate hike) by the end of 2015.Shortly before the announcement, Scotiabank among other major banks in Canada and the US moved back their predictions for the prime rate to remain flat from early 2015 to “well into 2016”, amid speculation of the adjusted growth forecasts.Fixed rates have also reached four month lows after soaring during May and June, immediately after the US fed hinted at reducing or removing their “bond buyback” program. The initial announcement that they may be removing their artificial demand for bonds created large upswings in bond yields, resulting in a 1% hike from their lows of early June at 1.07% up to 2.17% in early September. The trend reversed after the US fed announced that this would have too great an impact on financial markets (in a negative way) and stated that they will continue this program.
What do bond yields have to do with mortgage rates?Fixed rates are about 98% correlated with bond yields, so the short answer is “a lot”. Generally fixed rates offered through major banks are at about 1.7% above bond yields, which would indicate that 5yr fixed rates should be at around 3.4% today (as of Oct 25th, bonds are at 1.71%). If you are interested in knowing where bond yields are heading, bookmark and monitor this website: http://www.investing.com/rates-bonds/canada-5-year-bond-yield.With variable rates of Prime -.4% (2.6%) comparing well vs a current 5yr fixed rate (3.59%), this will likely result in a larger number of borrowers settling on a variable rate as they enjoy a 1% savings over what would look to be a minimum of 2-3 years. Unless fixed rates continue to drop quickly or the variable rate outlook changes, make sure you at least take a variable rate into consideration.Kyle Green is our mortgage expert, you can reach him through his website www.kylegreen.ca
We are continuing to see balanced conditions in the Greater Vancouver housing market. We are seeing activity that is typical of historical averages, and these trends are helping to keep the market in check, and in a balanced state over the past few months.During the month of October 2013, we saw 2,661 residential properties change hands on the Vancouver MLS. This represents a 37.8% increase compared to October 2012, where we saw 1,931 sales. And if we compare to September 2013 where we saw 2,483 sales, we calculate a 7.2% increase.During October, new listings that came online totalled 4,315. During October 2012, we saw 4,323 new listings (so a 0.2% decline), and compared to September 2013 we see a 14.2% decline (5,030 new listings).When we look at the 10 year average, sales in October trended 2.8% above the average for the month, and new listings we 1.9% below the 10 year average.
“We continue to see fairly typical activity when it comes to monthly home sale and listing totals,” Sandra Wyant, REBGV president said. “Today’s activity is helping to keep us in balanced market territory, which means that prices tend to experience minimal fluctuation.”When we look at the total number of properties currently listed, there are 15,257 active listings, a decline of 12.2% from the same month last year, and 5.3% decline compared to September 2013. Sales to active listing ratio is currently at 17.4%.
Detached Properties:Total number of sales: 1,067 (Up 35.1& from October 2012, and 9.5% increase from October 2011)Benchmark Price: $922,600 (Decrease of 0.5% from October 2012)
Apartment Properties:Total number of sales: 1,098 (Increase of 36.7% from 803 sales during October 2012, and 14.6% increase compared to 958 sales in October 2011)Benchmark Price: $365,600 (Decrease of 0.9% from October 2012)
Attached Properties:Total number of sales: 496 (Increase of 46.7% from 338 sales during October 2012, and 29.8% increase compared to 382 sales in October 2011)Benchmark Price: $458,000 (No change from October 2012)
Recently I had a conversation with a Credit Union manager, who implied that they will be asking for tax returns for all real estate investors. This news in itself doesn’t surprise us, as many major banks have started to ask for these on a more regular basis. The real story came up when I asked him why he needed them, as I assumed they would be using them to determine how much rental income they could use from the portfolio.Here’s the shocker. The CRA has asked the Credit Union to report to them all individuals who have rental properties on their application who have not reported them on their tax returns. Watch out, we were warned, as your bank may report you to the CRA. He mentioned that this is likely to be an issue and will be more publicized in the near future as more lenders start asking for T1 Generals to confirm rental income.This is interesting as many lenders have already been requesting T1’s for the past year, so the question is whether they have already been reporting this or not. We know that pressure from OSFI (Office of the Superintendent of Financial Institutions) was what caused certain lenders to begin asking for tax returns. Although the thought had crossed our minds that perhaps part of this was done to help the CRA, this hadn’t been confirmed by a lender until now.File your taxes in case your bank reports you to the CRA!Kyle Green is our mortgage expert, you can reach him through his website www.kylegreen.ca
Fixed rates rise yet again, as 5 year bonds hit 2 year highs on Thursday, Sept 5th at 2.16%. Most lenders are now in the 3.59% – 3.79% range for 5yr fixed terms, which is still within the normal bonds plus 1.6% – 1.8% spread we have seen. Many that are buying into bonds cite higher expected inflation, which would otherwise make bonds worth less.If the current trends continue, where fixed rates continue to rise and variable rate discounting continues to get better, we will be cautiously advising more of our clients to consider a variable rate of Prime – .4% or better (2.6% or lower). All it takes, however, is bad economic data either in North America or even around the world to put downward pressure back onto bond yields. Although the last few months has seen only a slew of positive economic data, the last few years have been especially volatile and rates generally trend up and down like a roller coaster.If you don’t have rates held for a pre-approval, or if your mortgage is coming up for renewal next year it would be wise to call us to discuss holding rates. If you have a renewal coming up soon and rates keep climbing, it may make sense to pay the penalty to get out of your mortgage early to take advantage of low fixed rates.Kyle Green is our mortgage expert, you can reach him through his website www.kylegreen.ca
What is a MBS and how does this news affect you?
What is an MBS?To those who are unfamiliar, an MBS is a pool of mortgages that lenders bundle up and sell to investors to raise money to lend out. The government guarantees these bundles as a way to lower the return demanded by buyers of MBS bundles (investors), which in turn results in a lower rate to the borrower. MBS' have become much more important in the last 5 years, especially as lenders now need to hold more funds in reserves for every mortgage lent out. If the lender can sell them, however, they no longer need these funds sitting in reserves earning them nothing. An MBS as essentially a way for lenders to lend money they don't have and stay profitable and within regulatory requirements.
What will this mean for borrowers?The move is expected to lead to a 60% drop in NHA MBS insurance through year-end, forcing banks to find more expensive ways to fund large numbers of their mortgages. This cost is, unfortunately, unlikely to be eaten by the bank.Although it is unclear what the cost to the consumer will be, analysts and economists so far have predicted anywhere from .2% (the majority of them) all the way to .65% of an increase to the cost of funding mortgages.Roughly 30% of all residential mortgages are securitized, and about 65% of these fall under the effected "NHA MBS" category. Right now 81 lenders use NHA MBS, but only a few will exceed the new cap of $350 million per month, so primarily the big banks will feel the effects.
Why is CMHC doing this now?So why is CMHC doing this? Apparently, CMHC had set a cap for this funding method for 2013 of $85 Billion. So far, lenders have already gone through $66 Billion only just over halfway through the year, so the government stepped in to take action. The problem is, no lenders seemed to know about it. "It came out of left field," said one capital markets professional. No public discussion of this cap can be found aside from their general $600 Billion cap on ALL insured mortgage products.
Final ThoughtsOn a whole, we are likely to see mortgage rates increase across the board. However, this is one of the few changes that will actually be less favourable to big banks and won't effect smaller lenders. Non-bank lenders who don't get a lot of their funding from large banks like CMLS, Merix, Canadiana, etc will likely escape relatively unscathed. We may see smaller non-bank lenders become more competitive (slightly) on their rates than big banks as a result.Kyle Green is our mortgage expert, you can reach him through his website www.kylegreen.ca
Is Vancouver Real Estate heading for a US Style housing crash? You would think so if you read the newspapers, but lets look behind the hype and headlines, and take a look at the facts...
During the month of August 2013 we saw 2,514 sales recorded on the Vancouver MLS®. This is an increase of 52.5% if we compare to the same month during 2012, and a 14.7% decline from July of this month when 2,946 sales occurred.August 2013's sales were down 4.6% below the 10 year average for the month.
“We’ve seen a healthy amount of demand in the marketplace this summer compared to the number of homes listed for sale,” Sandra Wyant, REBGV president said. “The market today is much stronger than we saw last year and is consistent with our long-term averages for this time of year.”There were 4,186 new listings during the month of August, this is up 3.5% from the same month in 2012,a and 13.8% decline from the 4,854 new listings during July 2013.The sales-to-active listing ratio is sitting at 15.7%, which according to the Real Estate Board of Greater Vancouver indicated that we are in a balanced market.
“People entering the market should not confuse stronger sales activity with rising prices. Home prices have been quite stable and consistent for much of this year,”
Detached Properties1,052 properties changed hands on the Greater Vancouver MLS during August 2013 - this represents an increase of 69% from August 2012, and a 3.1% increase from the units sold in August 2011 (1,020). Benchmark price is currently sittings at $923,700 and has decreased 2% since August 2012.
Apartment PropertiesDuring August, 1,018 apartment properties changed hands. increasing 40.4% compared to 725 sales in August 2012, and 3.1% from 1,020 units sold in August 2011. Benchmark price is sitting at $366,100, which represents a decrease of 1.1% from August 2012.
Attached Properties444 attached properties were sold during August 2013, an increase of 48% compared to August 2012, when 300 properties changed hands, and if we look back to August 2011 when 403 were sold, we see a 10.2% increase. Benchmark pricing has decreased from August 2012 to $457,000.
With fixed rates rising to around 3.5% for 5yr terms, and variable rate discounts getting better, (best rate Prime -.45%, many lenders around the Prime - .3 - .4% range) many of our clients who don't have pre-approvals for 5yr fixed rates around 3% are going to be considering a variable rate for their next mortgage.But how do you decide? There are so many factors to consider, like when the Prime rate will move, how quickly it will move, mortgage penalties, etc. Here's a quick breakdown of some of the things that will make the decision a little bit easier. Reasons to go short term (Variable or terms <4 years):
- You might be selling the property before a longer term would expire
- You think that interest rates will drop or stay the same
- You plan on increasing your payments and decreasing the amortization quickly.
- You really want a variable rate but aren't happy with the current variable rate discounts (currently best variable is Prime - .45% which is 2.55%) and believe they will get better (to Prime -.75% or better as it has been in the past)
- You only need to borrow the funds for a short period of time
- You may be coming into a windfall like an inheritance in the near future
- If an investment property, it will still cashflow even if rates rise significantly
- Variable rates have traditionally out-performed fixed rates
- You are a risk taker
- You expect to be keeping the property for an extended period of time
- You plan on being on a long amortization for an extended period of time.
- You want to protect the cashflow of an investment for an extended period of time. The average home price in Canada has historically always been higher over a 10 year period since the 1950's, so guaranteeing the cashflow can nearly guarantee the returns
- After 5 years of being in a fixed rate in Canada the maximum penalty is a 3 month interest penalty, so you can break it inexpensively (very relevant when considering 10yr fixed terms)
- You believe rates will rise during the term
- You will lose sleep if mortgage rates are moving up
- You are not a risk taker
With so much sunshine in July, you would be forgiven for thinking that everyone would just be tanning on the beach, or away on vacation, alas no! People were purchasing real estate!During the month of July 2013 - residential sales on the Greater Vancouver MLS reached 2,946. When we compare to the same month last year we see a 40.4% increase compared to the 2,098 sales recorded during July 2012. Compared to June 2013 we see an 11.5% increase from the 2,642 sales in June 2013!
“Demand has strengthened in our market in the last few months, which can, in part, be attributed to pent-up demand from the slowdown in sales activity we saw at the end of last year,” Sandra Wyant, REBGV president said.During the month, we saw 4,854 new listings, compared to the same month during 2012, we see a 1.1% increase (4,802 listings during June 2012). Compared to June 2013 this figure represents a 0.4% decline (4,874 new listings in June 2012).The number of active listings on the Vancouver MLS in Greater Vancouver is 16,618, which represents an 8.1% decrease from the same month last year (July 2012) and a 3.9% decrease from June 2013.Sales to active listing ratio rose to 17.7% in Greater Vancouver. This is the highest the ratio has been since April 2012.
“Home prices continue to experience considerable stability with minimal fluctuation throughout much of this year,” Wyant said. “This stability in price brings greater certainty to the home buying and selling process.”Detached Properties1,249 properties were sold during July 2013, an increase of 59% from the same month last year, and 13.7% increase from the month of July 2011. Benchmark price for detached properties fell 3.1% from July 2012 to $920,500.Apartment Properties1,210 sales occurred during July 2013. An increase of 31% from the 927 apartments that changed hands in July 2012, and if we look back further we see a 13.7% increase from the 1,099 units sold in July 2011. Price decreased 1.6% from July 2012 to $368,300.Attached PropertiesAttached property sales totalled 487 during July 2013, an increase of 27% compared to 384 sales during July 2012, and a 12.7% increase if we look back to July 2011 (432 sales). Benchmark price is sitting at $456,700, down 2.6% from July 2012.
We often hear much chatter about prices in Vancouver, and how expensive the Real Estate is here.A recent study by consulting firm Mercer's has revealed that Vancouver doesn't even make it into the top 10 for the most expensive cities for expatriate employees to be transferred to for work.Angola's city of Luanada clocks in at the most expensive city, where a cup of coffee can cost up to $8.29!For employers, employee housing and Real Estate can be the biggest cost, and in Moscow rent for a luxury unfurnished 2 bedroom condo can be around $4,600 per month. The other three most expensive cities that make up the top five are:
- Ndjamena in Chad