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B-20 Stress Test Needs Revision to Improve Housing Affordability

BCREA Stress Test

The British Columbia Real Estate Association (BCREA) is calling on the federal government to revisit the B-20 stress test so that more BC families can achieve their dream of homeownership. Mortgage lending rules, known as the B-20 stress test, have eroded housing affordability by reducing the purchasing power of families by as much as 20 per cent. Introduced last year, the stress test forces even the most credit-worthy borrowers with large down payments to qualify at an interest rate that is two percentage points above the rate they negotiate with their bank.

“We would like to see a review and reconsideration of the current mortgage underwriting ‘stress test,’ as well as a return to 30-year amortizations for federally insured mortgages,” says BCREA chief executive officer Darlene Hyde. “These rules must be changed now before BC families are left further behind.”

The stress test has caused a sharp decline in the attainability of homeownership in Canada. Since its implementation, home sales have declined 18 per cent across the country. Canada’s largest urban centres, where lack of affordability was especially acute before the new rules came into effect, have been hardest hit.

Home sales have declined nearly 25 per cent in Toronto and more than 45 per cent in Vancouver over the same period.

Stress Test Home Sales

“The B-20 stress test is also having a negative impact on homeowner equity, family spending and the housing stock itself,” adds Hyde. “There’s a knock-on effect to the overall economy as families who are worried about declining home equity cut back on retail spending, home renovations and other products and services.”

A sharp decline in housing demand also causes home builders to pull back on production, arguably when it’s needed most, leading to slower growth of the housing stock and yet another supply crunch coupled with upward pressure on home prices down the road. Accordingly, the Canadian Home Builders’ Association has expressed similar concerns regarding the B-20 stress test, and the Canadian Real Estate Association and Toronto Real Estate Board have recently made similar appeals.

When families are locked out of the housing market by the strictest of mortgage rules, even the BC government treasury is affected. The sharp decline in home sales caused by the B-20 stress test has cost the government $400 million in lost Property Transfer Tax revenues alone, money that could have been used for health care, education and affordable housing.

BCREA – Vancouver, BC – March 12, 2019.

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Balanced Conditions Prevail in BC Housing Market

The British Columbia Real Estate Association (BCREA) reports that a total of 6,405 residential unit sales were recorded by the Multiple Listing Service® (MLS®) across the province in October, down 26.2 per cent from the same month last year. The average MLS® residential price in BC was $690,161, a decline of 4.1 per cent from October 2017. Total sales dollar volume was $4.2 billion, a 29.3 per cent decline from October 2017.

“The BC housing market continued to grapple with tougher mortgage qualifications in October,” said Cameron Muir, BCREA Chief Economist. “However, more moderate consumer demand has led to a much-needed increase in the supply of homes for sale.”

Total active residential listings were up nearly 30 per cent to 36,195 units in October, compared to the same month last year. While the BC housing market exhibited balanced conditions overall in October, market conditions do vary between regions and by product type.

Year-to-date, BC residential sales dollar volume was down 22.1 per cent to $49.7 billion, compared with the same period in 2017. Residential unit sales decreased 22.8 per cent to 69,664 units, while the average MLS® residential price was up 1 per cent to $713,662.

Source – BCREA

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Housing Market Reacts to Mortgage Stress Test

Vancouver Real Estate recats to Mortgage Stress Test BC

BCREA 2018 Third Quarter Housing Forecast Update

The British Columbia Real Estate Association (BCREA) released its 2018 Third Quarter Housing Forecast MLS Residential SalesUpdate today.

Multiple Listing Service® (MLS®) residential sales in the province are forecast to decline 21 per cent to 82,000 units this year, after recording 103,768 residential sales in 2017. MLS® residential sales are forecast to increase 8 per cent to 88,700 units in 2019. The 10-year average for MLS® residential sales in the province is 84,800 units.

“The BC housing market is grappling with a sharp decline in affordability caused by tough B20 stress test rules for conventional mortgages,” said Cameron Muir, BCREA Chief Economist. “While these rules have had a negative effect on housing demand across the country, the impact has been especially severe in BC’s large urban centres because of already strained housing affordability.”

In spite of the policy-driven downturn in housing demand, strong fundamentals continue to underpin the market. Demographics are highly favourable, especially the millennial generation who are now entering their household-forming years. In addition, low unemployment is leading to significant upward pressure on wages and, by extension, household wealth and confidence.

The pullback in BC home sales is helping alleviate a chronic shortage of supply. After trending at decade lows, active listings in the province were up nearly 20 per cent in July. The combination of slower housing demand and an increase in the inventory of homes for sale has trended most markets toward balanced conditions. This means more selection for home buyers, fewer multiple offer situations and less upward pressure on home prices.

Source – BCREA

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Canadian Housing Starts – August 9, 2018

Canadian Housing Starts - August 9, 2018

Canadian housing starts declined 16 per cent on a monthly basis in July to 206,300 units at a seasonally adjusted annual rate (SAAR). The six-month trend in Canadian housing starts has been on a steady decline in the past few months and is now at 220,000 units SAAR.

In BC, total housing starts increased 24 per cent on a monthly basis to 42,500 units SAAR but were down 7 per cent year-over-year. On a monthly basis, starts of multiple units were up 35 per cent to an annual rate of 33,200 units while single detached fell 4 per cent. Compared to July 2017, multiple units starts were down 5 per cent while single detached starts were 11 per cent lower.

Looking at census metropolitan areas (CMA) in BC:

Total starts in the Vancouver CMA were down 10 per cent year-over-year but jumped 48 per cent on a monthly basis from June due to a surge in multiple unit starts.

In the Victoria CMA, housing starts fell 18 per cent from June to 4,880 unit SAAR and were down 40 per cent year-over-year. Total housing starts in the Victoria CMA are up 14 per cent in the first seven months of 2018 as builders respond to strong housing demand in the area, particularly in West Shore municipalities like Langford and Colwood.

In the Kelowna CMA, new home construction increased 23 per cent year-over-year as a result of new multiple unit projects getting underway. However, on a monthly basis, total starts were down 47 per cent from a very strong June to a rate of just under 2,000 units SAAR.
Housing starts in the Abbotsford-Mission CMA fell 15 per cent on a year-over-year basis, with the decline entirely due to lower levels of new construction in multiple unit housing. However, starts in July were more than triple those recorded in June, coming it at a rate of 1,750 units SAAR.

Source – BCREA

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A Return to Balance for BC Housing Market – BCREA

Vancouver MLS Residential Market Update

Vancouver, BC – July 13, 2018. The British Columbia Real Estate Association (BCREA) reports that a total of Vancouver MLS Residential Market Update7,884 residential unit sales were recorded by the Multiple Listing Service® (MLS®) across the province in June, a 32.5 per cent decrease from the same month last year. The average MLS® residential price in BC was $716,326, down 1.3 per cent from June 2017. Total sales dollar volume was $5.6 billion, a 33 per cent decline from June 2017.

“The impact of the B20 stress test is still being felt across the province,” said Brendon Ogmundson, BCREA Deputy Chief Economist. “Lower demand as the result of higher mortgage rates and stringent mortgage qualification rules are bringing most markets around the province back into balanced conditions.”

Although the supply of active listings in the province is on the rise, inventory remains low by historical standards and markets like Vancouver Island and the Okanagan remain undersupplied.

Year-to-date, BC residential sales dollar volume was down 18 per cent to $32 billion, compared with the same period in 2017. Residential unit sales decreased 20 per cent to 43,863 units, while the average MLS® residential price was up 2.4 per cent to $730,492.

Source – BCREA

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Bank of Canada Interest Rate Announcement – July 11, 2018

Bank of Canada Interest Rates

The Bank of Canada opted to raise its target for the overnight rate 25 basis points to 1.5 per cent this morning. In the statement accompanying the decision, the Bank cited that the economy is operating close to capacity and as a result inflation is expected to edge higher over their two year forecast horizon. The Bank noted that incoming data suggests housing markets are starting to stabilize after the implementation of the B20 stress test.

With inflation rising to the Bank’s two per cent target and the Canadian economy operating at or near capacity, the Bank of Canada is unlikely to be finished tightening. At its current level, the overnight rate is about 150 basis points below the 3 per cent rate the Bank would ultimately prefer it to be. However, the Bank may take a brief pause to assess the impact of its past tightening as well as the ongoing effects of the B20 stress test on housing markets. It may also be dissuaded from further tightening should there be a further escalation in trade tariffs from the United States. Overall, we expect at least one more round of rate increases from the Bank of Canada in 2018.

Source – BCREA

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Canadian Housing Starts – July 10, 2018

BC Real Estate Statistics - Vancouver

Canadian housing starts rose 28 per cent on a monthly basis in June to 248,000 units at a seasonally adjusted annual rate (SAAR). The six-month trend in Canadian housing starts was steady at about 222,000 units SAAR.

In BC, total housing starts declined 16 per cent on a monthly basis to 34,300 units SAAR and were down 10 per cent year-over-year. On a monthly basis, starts of multiple units were down 21 per cent to an annual rate of 24,563 units. Multiple unit and single detached starts were both down10 per cent compared to June of last year.

Looking at census metropolitan areas (CMA) in BC:

Total starts in the Vancouver CMA were down 28 per cent year-over-year due to a 34 per cent decline in multiple unit starts and were down 36 per cent from May 2018. In the first six months of the year, housing starts in the Vancouver CMA were essentially flat compared to the first six months of 2017.

In the Victoria CMA, housing starts nearly doubled year-over-year and were up 85 per cent on a monthly basis to a seasonally adjusted annual rate of nearly 6,000 units. New home construction is up 45 per cent year-over-year in the first six months of the year. Much of that new construction is the result of a doubling of rental starts compared to last year.

In the Kelowna CMA, new home construction increased 43 per cent year-over-year as a result of continued growth in multiple unit starts. However, on a monthly basis, total starts were down 6 per cent from May to a rate of 3,590 units SAAR.

Housing starts in the Abbotsford-Mission CMA fell 5 per cent from May to 515 units SAAR due to a dip in multiple unit starts. Year-over-year, total housing starts fell 82 per cent as only 47 total units including only 16 multiple units were started in June.

Source – BCREA

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Mortgage Policy Changes Hit Affordability Hard

MLS Residential Sales

The British Columbia Real Estate Association (BCREA) reports that a total of 8,837 residential unit sales were recorded by the Multiple Listing Service®MLS Residential Sales (MLS®) across the province in May, a 28.7 per cent decrease from the same month last year. The average MLS® residential price in BC was $739,783, down 1.7 per cent from May 2017. Total sales dollar volume was $6.54 billion, a 30 per cent decline from May 2017.

“BC home sales continued to slow in May because of more stringent qualifications for conventional borrowers,” said Cameron Muir, BCREA Chief Economist. “The changes in mortgage policy are taking their toll on housing demand, not only in British Columbia, but across the country by reducing household purchasing power and housing affordability.”

While the decline in consumer demand has lifted the inventory of homes for sale, total active residential listings in the province are still relatively low by historical comparison.

Year-to-date, BC residential sales dollar volume was down 13.8 per cent to $26.4 billion, compared with the same period in 2017. Residential unit sales decreased 16.6 per cent to 35,976 units, while the average MLS® residential price was up 3.4 per cent to $733,616.

Source – BCREA

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New Rules to Profoundly Change How REALTORS® Work With Consumers

Real Estate Rule Changes in BC

On June 15, 2018, changes to Rules under the Real Estate Services Act that dictate how REALTORS® work with consumers will come into effect. The Rules, mandated by the Office of the Superintendent of Real Estate (OSRE) and finalized on April 27, 2018, have been amended to ensure consumers have a thorough understanding of their relationship with their REALTOR®, particularly when it comes to conflicts of interest and remuneration.

“Since the new Rules were finalized six weeks ago, BCREA has been hard at work to update our Applied Practice Courses for new licensees, continuing education courses and nearly two dozen standard legal forms that have been impacted by the changes,” said British Columbia Real Estate Association (BCREA) CEO Darlene Hyde. “The new rules governing real estate practices mark a significant shift in how REALTORS® in BC work with their clients. It’s important that consumers know what to expect when the changes come into effect.”

REALTORS®, consumers and conflicts of interest

One of the changes is a ban on limited dual agency. Limited dual agency occurs when a REALTOR® represents more than one party in a real estate transaction. That can be a buyer and a seller, two or more buyers, or a landlord and a tenant. The ban was recommended by the Real Estate Council of British Columbia’s (RECBC) Independent Advisory Group in 2016. Exemptions will be possible in limited circumstances.

As part of the Rule amendments, a REALTOR® will inform a consumer at the beginning of their working relationship that the REALTOR® may be required to stop representing the consumer mid-transaction if a potential conflict of interest arises. A conflict of interest can occur, for example, when a buyer who the REALTOR® has previously represented makes an offer on a property belonging to a seller the REALTOR® is currently representing. In such instances, the REALTOR® may be required to refer the seller to another REALTOR®.

REALTORS®, consumers and compensation

From June 15, consumers can expect that REALTORS® will make more disclosures on the commissions they receive on transactions. Consumers are most likely to notice the impact of this Rule change when it comes to multiple offer scenarios.

Once the amendment comes into effect, every time an offer or counter-offer is made to a seller, the seller’s REALTOR® will be required to present the seller with a completed disclosure form that explains exactly how much remuneration the REALTOR®’s brokerage will receive.

This form will also explain how the commission will be shared with other brokerages involved in the transaction (the buyer’s brokerage) and any other payments the REALTOR® expects to receive as a result of the transaction.

BCREA and the 11 member boards have been working with RECBC and OSRE to make these changes as seamless and as transparent as possible. We are actively working to educate REALTORS® on the implications of these changes so they can continue to serve consumers with integrity and professionalism when the Rule changes come into effect.

“These changes will profoundly alter for the foreseeable future the way consumers initially interact with their REALTOR®,” said Hyde. “BCREA has done its utmost to facilitate the transition to the new Rules and we stand behind a strong regulatory regime, informed and knowledgeable customers and professional REALTORS®.”

Source – BCREA

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Slower Growth Expected for Economy and Housing Market  

Vancouver Real Estate Sales Forecasts

BCREA 2018 Second Quarter Housing Forecast Update

Vancouver, BC – May 31, 2018. The British Columbia Real Estate Association (BCREA) released its 2018 Second Quarter Housing Forecast today.MLS Residential Sales Forecast

Multiple Listing Service® (MLS®) residential sales in the province are forecast to decline 9 per cent to 94,200 units this year, after posting 103,700 unit sales in 2017. MLS® residential sales are forecast to remain relatively unchanged in 2019, albeit down 0.2 per cent to 94,000 units. Housing demand is expected to remain above the 10-year average of 84,800 units into 2020.

“The housing market continues to be supported by a strong economy,” said Cameron Muir, BCREA Chief Economist. “However, slower economic growth is expected over the next two years as the economy is nearing full employment and consumers have stepped back from their 2017 spending spree.”

“Demographics will play a key role in the housing market over the next few years,” added Muir, “as growth in the adult-aged population is bolstered by immigration and the massive millennial generation enters its household forming years.”

Muir notes there are, however, significant headwinds in the housing market. “Rising mortgage interest rates will further erode affordability and purchasing power, with the effect being exacerbated by an already high price level. The legacy of tougher mortgage qualifications for conventional mortgagors will be a reduction of their purchasing power by up to 20 per cent, and the provincial government’s expansion of the foreign buyer tax and several other policies aimed at taxing wealth is sending a negative signal to the market and likely diverting investment elsewhere.”

The combination of slowing housing demand and rising new home completions is expected to trend most BC markets toward balanced conditions this year, and lead to less upward pressure on home prices.

Source – BCREA