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“If the BC economy tanks, we know who / what to blame. Take a look at the following from the BC Real Estate Association’s economist;”

The desire of some well-meaning British Columbians for government to drive down the price of homes through demand-side policy may sound practical at first blush. However, when you consider the broad and deep economic toll that a negative shock to home prices would exact on both homeowners and renters, it quickly becomes apparent that such an approach is at best, a mug’s game. BCREA Economics analysis* shows that even a relatively modest negative price shock will produce significant consequences to the BC economy.

BCREA Market Intelligence Report: The Economic Fallout of Housing Price Shocks

FOREIGN BUYERS AND TAXABLE TRUSTEES PROPERTY TAX;

Foreign Buyer’s tax for Residential properties has gone from 15% to 20%, effective today. The area this tax covers has been extended from just Greater Vancouver to : The Capital Region District, Fraser Valley Regional District, Regional District of Central Okanagan and Nanaimo Regional District.

The areas for each region can be found at https://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand/additional-property-transfer-tax/bc-areas

– If the property is farmland or commercial with a residential component, the tax applies on the residential component.

– Exemption for BC Provincial Nominee Program still applies.

SPECULATION TAX – NEW

1. The tax is meant to target foreign and domestic homeowners who do not pay income tax in B.C.

2. The tax will apply to same areas as foreign buyers tax apart from Okanagan, where it only applies to Kelowna and West Kelowna.

3. This tax starts in 2018 at $5.00 per $1,000.00 of assessed value and goes up to $20 in 2019.

Other details are not available at this time

PROPERTY TRANSFER TAX – Increase for Properties over $3 million.

1. Tax rises from 3% to 5% on value of homes over $3,000,000.00.

2. It remains at 1% on first $200,000.00, 2% on amounts between $200,000.00 and $2,000,000; 3% on amounts between $2,000,000.00 and $3,000,000.00 and 5% on amounts over $3,000,000.00.

PRE-SALE CONDO ASSIGNMENTS

1. Developers will collect and report information about pre-sale condo purchases; nothing else in budget about pre-sale contracts or assignments that we have seen.

B.C. HOME OWNER SECOND MORTGAGES 

1.    This program is now cancelled – don’t think it was used much anyway.

By now everyone is aware of the hot real estate market in Vancouver and the fact that it is difficult for Canadians to purchase. But there is a lot more to the story.

40,000 people per year are coming into British Columbia from outside Canada and CMHC says 90% of them are settling in the Lower Mainland. A further 10,000 are coming to BC from across Canada – and it is estimated 10% of those are settling in the lower mainland.

On top of this, Justin Trudeau just announced a new program that will be bringing 1 million new immigrants into Canada over the next 3 years. Traditionally, 20% of new immigrants to Canada settle in BC (2001) as of 2016 that percentage was down to 14.6%. So if my math is correct, that is another 50,000 people into BC annually (45,000 into the Lower Mainland) – on top of the 40,000 (36,000 in the Lower mainland) we usually expect each year – and all of them are going to need a place to stay.

According to CMHC, housing starts in the Lower Mainland as of June 2017 were just over 39,000 housing units and 95% of them were already sold. Already we are 47,000 housing units short.

Compounding the problem of the obvious housing shortage in the coming years, Trudeau’s government has decided he is going to ‘cool off’ the price escalations by making it harder for Canadians to qualify for a mortgage – in effect reducing demand.

How do you cool off a market that is strictly supply and demand driven? If the supply is low and demand remains constant then prices will rise. If demand is high and supply is low (or constant) then prices will rise.  I surmise that Trudeau’s theory is if he can restrict demand then prices will fall. Hence the new mortgage ‘stress test’ rules. Yet that is only restricting demand from Canadians – read on.

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Upcoming changes to mortgage lending guidelines, the rules of borrowing, take effect Jan. 1, 2018 and while there’s been a fair bit of press coverage on this, there is also a fair bit of confusion.

What is NOT happening

 Interest rates are not specifically rising Jan 1, 2018. Although there is a Bank of Canada meeting Jan 17th, which is the next time variable rate mortgage holders would see a potential change, the current expectations are that there will be no change to Prime rate anytime soon.

 What IS happening

 Maximum borrowing power for those with a 20 per cent or GREATER down payment is being REDUCED by 20% or more!    

WHY is this happening?

 To protect you from yourself. So says the current federal government.

 Not due to any material increase in risk or arears. In fact current mortgage arrears rates are hovering around 0.29%, and when Canada was subject to a massive global economic meltdown in 2008 our arears were just 0.41%.

 A high of 0.41% in 2008 based on clients who had qualified for mortgages under far more lax standards of 2007 and earlier. Since 2008 when the first round of lending restrictions were put in place, we’ve had annual restrictions added every year since.

 Who is affected?

1) Those that have no mortgage at all, but do have a pre-approval.  That pre-approval may or may not protect you for the first 119 days of 2018. A select group of lenders have confirmed they will grandfather existing pre-approvals under the 2017 lending rules for up to 120 days. However many lenders will not; for them Jan. 1, 2018 is a hard stop on the old lending rules. Still others are already enforcing the new rules. The question is what is your lender going to do? Not all lenders have announced their policies yet.  Find out where you stand by asking the following questions;

 Question#1: Do the new guidelines affect you?

 Question#2: If Yes to Q #1, is your pre-approval going to be grandfathered with the lender that holds it?

And  2)  Those that have a mortgage in place but you may want to;

– Increase your mortgage amount by even just $1?

– add on a secured line of credit for even just $1?

– move your mortgage to a new property in 2018?

 To add new money, or to move the mortgage to a new property, you’ll trigger a re-evaluation under the new rules, and many Canadians will not qualify for the very mortgage they currently have, even for something is seemingly simple as moving it to a new property – even with a reduction of say 10% or 15% of the balance… a mortgage they may have just taken a few months earlier.

 Your mortgage is most likely ‘portable’, but under the new guidelines it’s only portable with a complete re-qualification.

 Who is safe?

 Those simply renewing their current balances. None of these changes affect you if you are renewing your mortgage for the exact same amount with the same lender.

This explanation has been kindly provided by Dustan Woodhouse – Mortgage Broker

BCREA 2017 Fourth Quarter Housing Forecast

Vancouver, BC – November 28, 2017 The British Columbia Real Estate Association (BCREA) released its 2017 Fourth Quarter Housing Forecast today.

Multiple Listing Service® (MLS®) residential sales in the province are forecast to decline 10.4 per cent to 91,700 units in 2018, after an expected 8.8 per cent decrease this year. A record 112,209 unit sales were recorded in 2016. The ten-year average for MLS® residential sales in BC is 84,700 units. Strong economic and demographic fundamentals are supporting elevated housing demand. However, a number of factors are expected to temper home sales in the province next year.

“Housing demand across the province will face increasing headwinds in 2018,” said Cameron Muir, BCREA Chief Economist.”A rising interest rate environment combined with more stringent mortgage stress tests will reduce household purchasing power and erode housing affordability.” The 5-year qualifying rate is forecast to rise 20 basis points to 5.15 per cent by Q4 2018, and the new qualification rules for conventional mortgages will erode purchasing power by up to 20 per cent. “Given the rapid rise in home prices over the past few years, the effect of these factors will likely be magnified.”

The supply of homes for sale is now trending at or near decade lows in most BC regions. The imbalance between supply and demand has been largely responsible for rapidly rising home prices. The combination of weakening consumer demand and a surge in new home completions next year is expected to induce more balanced market conditions, producing less upward pressure on home prices. The average MLS® residential price in the province is forecast to increase 3.1 per cent to $712,300 this year, and a further 4.6 per cent to $745,300 in 2018.

To view the full BCREA Housing Forecast, click here.

Starting in 2008, The Government has steadily reduced the maximum amortization rate from 40 years to 25 years. A 5 year amortization reduction has the equivalent effect on the amount of money a client qualifies to borrow as does a 1/2% interest rate hike.

1. Here’s the effect;

• in 2007 a buyer with 10% down and a $100,000 gross annual income could get a maximum mortgage of $630,000 (at 4.99% amortized over 40 years) – payments of $446.26 per month.
• In 2008 with the 5 year interest rate falling to 4.14% and the amortization period reduced to 35 years – that buyer would qualify for the same amount of mortgage, with payments of $449.08 per month.
• In 2010 when interest rates dropped to 3.49% – the amortization maximum was reduced to 30 years with that same buyer still only qualifying for the same amount of mortgage – with payments of $447.09
• In 2016, PRE October – that same buyer with a maximum amortization period of 25 years and an interest rate of 2.49% STILL only qualifies for a $630k mortgage.

2. In 2012, the feds introduced legislation impinging on the almost 3 million self-employed workers’ ability to get a ‘stated income’ mortgage. Under this law (B-20) they can borrow only 65 per cent of the purchase value – without requiring default insurance from Canada Mortgage Housing Corp., Genworth Canada or Canada Guaranty. If you have less than 35-per-cent down, your mortgage now has to be insured under specific guidelines. And here’s another twist – CMHC will allow a stated income application as long as you have been self-employed for less than three years. More than three years and you have to qualify according to your net taxable income. Line 150 on your tax return – which despite the ability to carry a large mortgage payment, accountants cleverly work the numbers – legally – to show a lower income with the objective of reducing the already too large income tax load.

3. 2014 additional tightening of rental income calculations – basement suites and additional properties)

4. New rules are in place now regarding the ‘portability’ of your mortgage. If you are attempting to escape the sometimes criminal payout penalty banks charge, by porting your mortgage to a new property and combining that with an additional mortgage to meet the purchase price, you may now have to re-qualify under the new tougher mortgage guidelines.

Effective March 17, 2017, CMHC’s standard mortgage loan insurance premiums will be changing as follows:

Interesting to note that during the first nine months of 2016

• Nearly 50% of CMHC’s transactional mortgage loan business were for loans of less than $300,000
• Nearly 95% of CMHC’s transactional mortgage loan business were for loans of less than $600,000
• Less than 1% of CMHC’s transactional mortgage loan business were for loans of more than $850,000

As at 30 June 2016, the rate of arrears (loans that are more than 90 days past due over the number of outstanding insured loans) was 0.32% , a decrease from year-end 2015.

Claims paid during the second quarter of 2016 totalled $91 million, an increase of $2 million (2.3%) from the same quarter last year primarily due to the transactional homeowner product.

An interesting comparison is the United States’ delinquency rate for all residential real estate loans. In the first 3 quarters of 2016 it was 4.84%, 4.56%  and 4.30% (3^rd quarter), respectively.

In the U.S. 3.1% of home owner loans were “seriously delinquent” in March, 2016 (defined as loans that are at least 3 months delinquent or in foreclosure proceedings). It was expected that this rate would be reduced further by the end of 2016.

The seriously delinquent rate was below 2 % in the US from the 1950’s up to the Great Recession (Dec. 2007 to June 2009 – where it rose to 20%!)

However, even the 2% rate is over 6 times higher than CMHC’s  0.32% rate. At this low delinquency rate, it makes one wonder if the 2017 increase in premium rates is just another tax revenue stream.

Effective January 16, 2017 the province of British Colombia will provide a Home Owner Mortgage and Equity Partnership Program to support first time homebuyers with the purchase of their first home. As part of the program, the B.C. government will match the down payment being contributed by the new homebuyers (up to 5% of the purchase price to a maximum of $37,500). This will be in the form of a 25 year BC Government administered loan with no interest or payments required for the first 5 years.

Some other points to be aware of:

1)  the applicants will need a pre-approval letter from either their bank or their mortgage broker in order to              apply for the loan.  Loan approval is expected to take approximately 5 days;

2)  minimum of 14 days (10 business days) required to fund the loan after final approval (subject removal);

3)  gifted funds for the applicants portion of the down payment will be allowed;

4)  there is no interest for the first five years, but immediately at year six the applicant will be required to either      pay the loan in full, or make monthly payments to a maximum of 20 years.  The interest rate is re-set every        five years.

The following criteria must be met in order to proceed with this program:

• First time home buyers only. EVERY person on title must be a first time home buyer.
• Combined annual income for all parties on title cannot exceed $150,000;
• The closing date on the purchase of the home must be on or after February 15, 2017.
• The mortgage must be high ratio default insured by CMHC, Genworth or Canada Guarantee;
• A monthly loan payment will be included in the Total Debt Service (TDS) ratio to calculate the approval amount. The payment will be calculated using the Bank of Canada rate and a 20 year amortization;
• All applicants must be a Canadian Citizen or permanent resident;
• Must have been a resident of BC for at least one year;
• Property must be the applicants principle residence;
• Applicants must remain in the property for five years.  If they sell the property within the first five years the loan must be paid out;
• Maximum purchase price of $750,000;
• The program will end on March 31st, 2020.

Some other points to be aware of:

1)  the applicants will need a pre-approval letter from either their bank or their mortgage broker in order to              apply for the loan.  Loan approval is expected to take approximately 5 days;

2)  minimum of 14 days (10 business days) required to fund the loan after final approval (subject removal);

3)  gifted funds for the applicants portion of the down payment will be allowed;

4)  there is no interest for the first five years, but immediately at year six the applicant will be required to either      pay the loan in full, or make monthly payments to a maximum of 20 years.  The interest rate is re-set every        five years;

5)  due to government regulation enacted two years ago, all non spousal applicants who’s income is being            used to qualify the mortgage must be on title.  On this program, all members on title have to be first time          buyers.  So for purchasers who have parents etc. who are co-signing the mortgage, they will not qualify            for this program unless the parents are also first time buyers and will be residing in the property.

The loan applications can be done on-line at  https://www.bchousing.org/housing-assistance/bc-home-partnership/program-overview-applicant-information . You will be required to provide their pre-approval letter along with other supporting documents at the time of the application.

Once the application is approved (approximately 5 business days) you will receive an approval confirmation.

The loan will be funded directly to the solicitor and registered as a 2nd mortgage on title.