An Interesting look at Vancouver’s real estate market by our friends at Zoocasa…

The Metro Vancouver housing market has gone through some dramatic changes over the last six months, as buyer demand has been hit by tougher federal mortgage qualification rules as well as province-specific taxes targeting foreign and speculative real estate investment.

As a result, the British Columbia and Vancouver real estate markets are going through a correction; sales have fallen by double-digit percentages, while supply continues to pile up. According to the latest data from the Real Estate Board of Greater Vancouver, sales were down 29.1% in April from the year before, and 43.1% below the 10-year average, while the total number of available Vancouver homes for sale skyrocketed by 46.2%.

The combination of slowing sales and a flux of inventory has cooled buyer conditions in municipalities across Metro Vancouver, pushing many into buyers’ markets from the balanced territory they were in last year. As a result, buyers may have more choice at a lower price point, though sellers are likely to see their listings remain on the market for longer without the competitive factors at play, such as bidding wars, that typically heat prices.

To determine the extent of the market correction throughout the Metro Vancouver region, Zoocasa ranked 15 areas according to their sales-to-new-listings (SNLR) ratios in April, compared to the same month in 2018. This metric is calculated by dividing the number of sales divided by new listings over the course of the month. The Canadian Real Estate Association defines a balanced market as having an SNLR between 40 – 60%, with ratios above and below that threshold indicating sellers’ and buyers’ market conditions, respectively.

Data was sourced from the Real Estate Board of Greater Vancouver as well as the Fraser Valley Real Estate Board. Sales and new listings figures mentioned below includes detached, attached, and apartment home types.

West Vancouver is Region’s Weakest Market

The upscale neighbourhood of West Vancouver tops the list as the weakest buyers’ market, with an SNLR of 20%, reflective of a -14% year-over-year drop in sales – a total of 48 transactions. While the supply of new listings also fell by -6% with 243 homes brought to market, slowing conditions were enough to drive prices down by -15%, to a benchmark of $2,212,900. Slowing conditions, however, aren’t a new development for this neighbourhood, which has been in correction mode over the last year following an increase in foreign buyer taxation, and the implementation of the federal mortgage stress test; last year’s SNLR also indicated a buyers’ market at 22%.

That’s followed by Richmond which, with a ratio of 25%, has seen a considerable contraction over the last year, plunging the neighbourhood into a buyers’ market from its previously balanced ratio of 46%. Sales have fallen -45% year over year to 172 transactions, compounding on a 1% increase in new listings (a total of 690). That’s pushed the benchmark price lower by -9.1% to $956,500. North Vancouver rounds out the top three buyers’ markets with a ratio of 29%, down from 46% the year before. That’s reflective of a -33% drop in sales, and a 6% uptick in new listings, pushing prices down by -9.6 to $1,019,500. Vancouver West also came in with a ratio of 29%, though its overall sales decline was less pronounced at -27% and the neighbourhood’s  supply of new listings stayed flat. The benchmark price fell -10.7% to $1,225,000.

Some Markets Remain Balanced

While there are currently no sellers’ markets in Metro Vancouver, three can still be considered balanced. Langley has the tightest market in the region with an SNLR of 48%, only slightly lower than 50% in 2018. Sales have been comparatively stable, dipping just -2% to a total of 246 transactions, while new listings have increased by 2%. Benchmark prices have decreased by -5.9% to $764,100.

Surrey (excluding South Surrey) follows with a ratio of 44% – while down considerably from the 51% recorded last year, that remains relatively balanced; despite a -20% drop in sales, an -8% decline in new listings helped offset slower activity. Prices are down -3.8% to an average of $690,331.

Rounding out the most balanced markets is Port Moody with a ratio of 41%, down from 49% last year. Sales have actually increased in the city by 6% at 57 transactions,  though that was outstripped by a 25% increase in new listings, prompting benchmark prices to dip by -7.1% to $905,200.

Where will interest rates go? This article provides valuable insight into interest rates in the foreseeable future. by our friends at First National.

In the run up to this week’s rate setting by the Bank of Canada, talk of a coming rate cut is creeping into the forecast.

A recent Reuters poll of 40 economists put the chances of a cut, within the next 12 months, at 40%.  However, the same poll but the chances of a cut, within this year, at about 20%.

Many of the economists cite global trade uncertainties – which are stalling economic growth in Canada and other countries – as the key trigger for a possible 25 basis-point reduction.  Most of the concern centres on the current China – U.S. tensions and the potential for a recession in the States rather than domestic, Canadian, factors.

Realistically, it is unlikely there will be any interest rate movement – down or up – in Canada before 2020.  The BoC is calling for moderate GDP growth through the second half of this year.  As well, the politics surrounding the October federal election will keep the bank on the sidelines.

In a separate Reuters poll, property market gurus predict home prices will remain in the doldrums for the rest of 2019.  They are forecasting a little breeze next year that will push prices up by about 1.7%, which will barely meet the rate of inflation.  The Canadian Real Estate Association is forecasting a 1.6% decline in sales for this year, with a 2.0% increase in 2020.

The market-watchers polled by Reuters point to debt-burdened consumers as the key reason for the slowdown.

Great insight from Genworth on saving for your down payment!

Saving and Sourcing a Down Payment

As you get ready to buy a home one of the first things to think about is your down payment. In Canada, the minimum down payment ranges from 5–20% depending on the price of your home.

• 5% under $500,000; and 
• 5% on first $500,000, 10% on each dollar between $500,000 and $1million.

Because down payments can be considerable sums of money—especially in large cities like Toronto and Vancouver where the average detached house price is over $1 million—homebuyers are becoming more creative and resourceful in finding money for down payments.

Here are the most common ways people source their down payments:

Savings: RRSPs and TFSAs

Saving up over time is the most common way to build up your down payment for a house or condo.

To make the most of those savings, you can opt to put them in a tax saving vehicle like a TFSA or an RRSP. Once your money is in a registered account you can choose what to invest in. Making a decision between a GIC, mutual fund, or ETF will depend on your risk tolerance and the time horizon of your savings. It’s best to speak to an investment advisor to determine your strategy.

TIP:

Putting a modest amount each month into savings—$200 or $400 per month—adds up quickly. ($400 per month is $4,800 every year!

The biggest benefit to putting funds in your RRSP is that you can do so before paying income tax, so you’ll be able to hit your savings goals faster. Here’s a summary of the differences between your TFSA and RRSP.

TFSA – money put in is from your after-tax income; money taken out is tax free.

RRSP – money put in comes from your before-tax income; money taken out is tax free up to the first $25,000 if you’re a first time homebuyer using the RRSP Home Buyers’ Plan, but must be repaid.

• Note: Budget 2019 proposes to increase the Home Buyers’ Plan withdrawal limit to $35,000. This would be available for withdrawals made after March 19, 2019.

If you are going to put savings into your RRSP, it’s important to understand the Home Buyers’ Plan to make sure you can access the funds without paying RRSP withdrawal tax.

If you are a first-time homebuyer, the Home Buyers’ Plan allows you to take $25,000 from your registered retirement savings plan (RRSP) tax-free to put toward your down payment. If you and your spouse or co-purchaser are both first-time buyers, you can each take advantage of this, for a combined total of $50,000.

Things you should know about the HBP:

• 39% of first-time homebuyers utilize the HBP to put towards their down payments.
• The Home Buyers’ Plan is considered a loan from your retirement, so it must be repaid within 15 years. You have to pay back 1/15 of the total amount borrowed over a period of 15 years. If you miss a year, you’ll have to pay tax on that amount, as it’s considered a regular withdrawal from your RRSP.
• Your repayments start the second year after you withdrew funds from your RRSP.
• The money must have been in the RRSP for 90 days before you can withdraw it.
• If you are currently selling your home and are now going to rent, you will be eligible for the HBP after four calendar years have passed. For example, if you sold your home on April 1, 2014, you’ll be eligible for the HBP on January 1, 2019.

For savings intended for your down payment, it usually makes sense to put the money in your RRSP if you’re a first-time homebuyer eligible for the Home Buyers’ Plan; after you’ve hit the $25,000 mark, it’s likely best to build up your TFSA.

On the flipside, your TFSA withdrawals are always tax-free. If this isn’t your first home purchase, it would be wiser to save in a TFSA.

Gifts from immediate family members

31% of homebuyers source at least some of their down payment from family members.¹

It’s also becoming more common for parents to invest in a property with their children, and then move into a portion of the home.

For more information, read our education page on living and buying with others.

Sell your car

Especially in large cities like Toronto or Montreal, it’s common for people—especially young people—to sell their vehicles to afford to buy their first home. With easy access to public transit, a car may not be as necessary as a down payment to venture out and live on your own.

Home Equity

If you’re looking at investment properties and already have a home paid down, either partially or in full, you could use a Home Equity Line of Credit (HELOC) to borrow against the principal of your home. By borrowing against one home, you may be able to afford a down payment for a second property.

Excellent advice from our friends at Zoocasa

The Credit Card Mistakes that can Hurt Your House Hunt

What’s in your wallet can dramatically help or hinder your chances of landing your dream home. That’s not a metaphor for your income or savings – the credit card you carry around every day has a direct impact on your credit score, and in turn, your property hunt.

The more mistakes you make with your credit card, the lower your credit score will be and the less reliable you’ll be seen at paying down debts. That could mean not being able to secure the best mortgage rate or a landlord’s trust in your ability to pay rent on time.

With that in mind, here are the credit card missteps you’ll want to avoid to help ensure that your credit score is above the 650 mark and a prospective new home doesn’t slip through your fingers.

Missing a Payment

Anytime you use a credit card to make a purchase, you are using borrowed money and accruing a balance that must be paid back by the date indicated on your monthly statement. If you do not pay off your credit card statement on time, it can leave a mark as a missed or overdue charge on your payment history.

Payment history is one of the most important determinants of your credit score and accounts for upwards of 35% of your total score.

Aside from the negative impacts to your credit score, missing a payment will also lead to interest charges on your balance for each day that you’re late. Most credit cards have an annual interest rate of 19.99%. However, a number of low interest credit cards charge rates in the single digits.

To ensure you don’t miss your credit card payments, set up an email, calendar or app notification of when your statement is due.

Not Using Your Credit Card

If you have a credit card but don’t use it for extended periods of time, your bank or card issuer may deem your account inactive and have it closed.

The closure of a credit card account can negatively impact your credit score, particularly if the credit card that is closed was your first or only one. One way to avoid having your credit card marked as being inactive is to use it to make purchases at least occasionally. Additionally, it’s recommended that you reach out to your bank or card issuer to inquire about their account closure policy, as terms tend to vary from one institution to the other and you might be able to avoid a closure by simply asking.

Maxing Out Your Credit Card

There are numerous benefits to using a credit card for the majority of your purchases, not the least of which includes the ability to earn rewards in the case of the best cash back or travel credit cards. With that being said, using your credit card to the extent that you’re constantly reaching the upper limits of your credit limit can be detrimental to your credit score.

A maxed-out credit card can signal to some lenders that you are overleveraged in terms of your debts – even if you pay off credit card statement in full and on time. In general, it’s recommended that you access up to maximum of 30% of your total credit limit (across all your credit cards and loans) at any one time.

If you’re reliably paying off your statements on time but continue to come close to maxing out your card, you can ask for a credit limit increase from your bank or card issuer. You may also want to wait till after you get your mortgage or credit checked by a potential new landlord before making multiple big-ticket purchases on your card. That way you can avoid accruing a balance that’s over 30% of your credit limit just as your credit score is being assessed.

Closing Your Oldest Credit Card

If the first credit card you opened has gone unused for a while and you’ve upgraded to some better plastic, the thought of cancelling it might have crossed your mind. After all, what purpose can your oldest card serve just sitting in your wallet? Turns out, quite an important one.

Your first credit card marks a key point in your credit history, and if you close it, you risk shortening the length of your credit history and potentially decreasing your credit score over the long run. Moreover, by cancelling a credit card, you will decrease the total amount of credit you have access to, which can also serve to decrease your score.

Therefore, it can be a smart move to not cancel your first credit card or any cards that have no annual fees for that matter. It’s also suggested you charge some purchases on all your credit cards at least occasionally to ensure they remain active.

Not Having a Credit Card in the First Place

If you don’t currently have a credit card, you’re missing out on one of the most straightforward ways of building good credit.

By using a credit card responsibly and paying off your balance in full every month, you’re signalling to lenders that you can be trusted when it comes to borrowing money – helping you develop a longer and more positive payment history. Without a credit card, lenders may have less information to work off of when building your financial history and profile.

Additionally, having a credit card can help diversify the types of debts tied to your credit score. Most lenders like to see a track record of on-time payments being made across multiple types of debt, so if you don’t currently a piece of plastic, getting one for the first time can help improve your credit mix and bump up your score.

In addition to a financial tool for building good credit, signing up for one of the best credit cards in Canada can also help you unlock access to a number of benefits, such as the ability to earn rewards on every dollar you spend (that can help you recoup some savings when shopping for new furniture) as well as side perks such as rental car coverage (which can come in handy when renting a van for your move).

Great insight on fixed vs variable mortgages in today’s interest environment by our friends at EQBank!

Spring has arrived and we’re starting to get a better sense of the real estate market in Canada this year. Sales and listings have been on the decline, but we’re still seeing small price increases in parts of the country. This isn’t a huge surprise since sales are typically slow during the winter so we may see some movement in the near future.

Recognizing that affordability is still an issue for many first-time home buyers, the federal government proposed a $1.25-billion incentive program that would help finance five to ten per cent of a prospective buyer’s mortgage as part of a shared equity program as long as they have a minimum down payment for the home purchase. They also plan to increase the amount that first-time buyers can withdraw from their RRSPs, from $25,000 to $35,000, per individual.

This news may help new buyers, but there are many other factors that all potential buyers need to consider when they start looking for a home.

Fixed vs Variable rate mortgages

Studies going back to 1950 show that, in general, borrowers tend to save money when they choose a variable rate mortgage instead of a fixed rate mortgage. A five-year fixed rate mortgage – by far the most common mortgage term in Canada – typically comes with a higher interest rate than variable rate mortgages or shorter term fixed rate mortgages.

Fixed rate borrowers pay a premium for predictability, knowing their mortgage payments won’t be upset when the Bank of Canada hikes interest rates.

Variable or floating rate borrowers, on the other hand, will see their rates rise and fall whenever the prime rate moves. These borrowers are betting that interest rates won’t rise above the current fixed rate, or that rates rise much later in the mortgage term when they’ve already made significant savings on the spread.

The variable mortgage argument has been less compelling lately as the spread between fixed and variable rates narrows.

Take Equitable Bank’s current 5-year adjustable rate mortgage of 2.95% versus its 5-year fixed mortgage rate of 3.14%. The spread is just 19 basis points and so all it takes is the Bank of Canada to increase rates by 1/4 of a percent for variable rate borrowers to see their rate surpass the fixed rate.

A good rule of thumb to follow is when the spread between fixed and variable rates is less than 50 basis points, go ahead and lock-in the fixed rate. When the spread is closer to 75 or 100 basis points, the variable rate is more attractive.

A great article by our friends at FNAT. 

Market watchers have received one of the strongest signals yet that interest rates are not going anywhere, anytime soon.

The U.S. Federal Reserve has held the line on its trend-setting policy rate, maintaining it in the range of 2.25% to 2.50%.  The central bank also made it clear (or, at least, as clear as central banks ever do) that it will not be moving rates given the current state of the American economy.

Unlike Canada, the main sticking point in the United States is inflation.  Here the economy is experiencing weak growth.  The Bank of Canada blames that on low oil prices and business investment that is being constricted by global trade uncertainties.  In the U.S. the economy has shaken off the doldrums that set in at the end of last year.  GDP grew by 3.2% in the first quarter this year and unemployment is a record lows.  But inflation is running at just 1.5%.  The Fed’s target is 2.0%.

Weak inflation is seen as a problem because it tends to suppress consumer spending, which is the main driver of the American economy.

The Fed was adamant about its decision, voting 10 – 0 in favour of holding steady, regardless of political bullying from U.S. president Donald Trump.  He is calling for a 1.0% rate cut and the resumption of the emergency bond-buying program known as quantitative easing.