December 18, 2013
Vancouver Real Estate: The 5 Most Important Events in 2013
1.New Mortgage Rules
Since 2008, the federal government has made several changes to the rules for mortgages insured through the Canada Mortgage and Housing Corporation (CMHC) and other private sector mortgage insurance providers - this was also the case in 2013. Let’s sum up the biggest changes over the last five years. These rules affect home buyers with less than a 20 per cent down payment:
- The maximum amortization period has been reduced to 25 years from 40 years. Home buyers must have a down payment of at least five per cent of the home purchase price where previously no down payment was required. For non-owner occupied properties, a minimum down payment of at least 20 per cent is now mandatory.
- Canadians can now borrow to a maximum of 80 per cent of the value of their homes when refinancing, a drop from 95 per cent.
- Limiting the maximum gross debt service (GDS) ratio to 39 per cent and the maximum total debt service (TDS) ratio to 44 per cent. These two important ratios are used when calculating a person’s ability to pay down debt. GDS is the share of a borrower’s gross household income needed to pay for home-related expenses, such as mortgage payments, property taxes and heating expenses. TDS is the share of a borrower’s gross income needed to pay for all debts, including those relating to home ownership.
- Government-backed mortgage insurance is now available only for homes with a purchase price of less than $1 million. Borrowers buying homes at or above this amount will need a down payment of at least 20 per cent if their financing is from a federally-regulated financial institution.
2. Depreciation Reports
2013 was the year that we saw the introduction of depreciation reports. Every strata in BC with more than five units, had to decide to have a report done that combines a comprehensive building assessment with a 30-year capital plan. In other words, a great document for owners and potential buyers who want to assess the health of a building, its mechanical systems and the expected life span and maintenance costs. For buyers, this will be one of the most important documents to read before deciding to purchase. It’s important to note that a strata can, with 75% majority, vote to reject or defer the initiation of such a depreciation report. In our experience so far, many strata’s seem to have taken this route. There can be good reasons to defer, e.g. the building is relatively new, still within its 2/5/10 warranty plan, etc. - and not so good reasons like kicking the can down the road fearing that substantial building renovations are needed in a foreseeable future.
For now the launch of the depreciation report is in the early phase but we believe it will gradually be adopted by all strata’s in BC, at the very least because the banks and insurance companies most likely will decide to demand a depreciation report before they will provide funding and insurance. It will be a much welcomed piece of documentation.
3. Market Finding its Balance
After more than a decade of a mostly rising and turbulent market, the last 12 months was characterized by a remarkably balanced market (defined as a sales-to-active-listings ratio between 10% and 20%). Realistic sellers and prudent buyers were finding each other on an even playing field. All indications show that this trend will not continue in the year(s) to come.
4. Continued Movement to Multi-Dwellings
Over the recent decades new real estate construction has significantly moved towards multi-family developments. For instance, in 1991 51% of all new construction was condos and townhomes, this year it was 79%. The transition continues and is gaining momentum. The rationale is both that land is limited but certainly also because of housing costs in Vancouver, which pushes the demand into the condo/townhouse segment. A trend we expect to see continue in a foreseeable future.
5. A Buyer’s Market for Condos, but Continued Demand for Single Family Homes
Because, as mentioned above, new construction is dominated by multi-dwelling developments, the supply is ample (for example in the South-East corner of False Creek) and thousands of new units will hit the market in the near future. The impact is that the buyer’s market for condos we’ve seen recently will continue as long as supply outnumbers the demand and puts a pressure on prices in this segment.
It’s a different story when it comes to single family homes. This is not where the high-volume supply and sales are but it’s where buyers are able, willing and ready to act. It’s also a market where the demand is fuelled by local savings and overseas equity and as long as the local market maintains its footing and these specific overseas national economies are stable and growing, we will continue to see a steady stream of buyers coming into this top-of-the-pyramid single family home market.