A separate study shows that one-fifth of transactions are wiped off the board as buyers are pushed out of the market by the new stress test. It is therefore very important that you make use of our unbiased mortgage advice on how to maximize your purchasing power when looking for a new home.
MLS residential sales across the province are expected to be 21% lower in 2018 this year. Dropping from more than 100,000 to around 82,000 transactions this year, according to the forecast by the British Columbia Real Estate Association (BCREA).
BCREA lays the blame for this at the feet of the mortgage qualification stress test that was introduced for all home buyers in January 2018. This require that all mortgage applicants qualify for a mortgage at a higher rate than they will actually pay, to ensure their ability to continue payments in case of financial difficulties or future interest rate rises. However, it also has the effect of reducing the amount that home buyers are able to borrow, by up to 20%.
The BCREA’s report said: ” The impact of stringent mortgage qualification rules on conventional mortgage borrowers introduced this year has severely eroded affordability and the purchasing power of many potential home buyers. The resulting shock to housing demand is expected to temper home sales through the rest of the year.”
The Mortgage Professionals of Canada (MPC), said that the stress test is a good idea to ensure buyers don’t overstretch themselves, but the qualifying rate used is too onerous. especially for first-time home buyers. The cumulative impact of rising rates, a 2% or greater stress test, provincial government rules in BC and Ontario, and further lending restrictions are negatively supressing housing activity, not just in Vancouver and Toronto, but through the country.
The upside to the suppressed sales activity, is a significant increase in home supply and if not an actual reduction in home values, at least “less upward pressure on prices”, observed the BCREA. The report concluded: “The pullback in BC home sales is helping alleviate a chronic shortage of supply. After trending at decade lows last year, active listings in the province were up nearly 20% in July. The Vancouver market has experience a 30% increase in active listings over the past year… This means more selection for home buyers, fewer multiple-offer situations and less upward pressure on home prices.”
Your mortgage broker knows the rules and can guide you through the process getting a mortgage in this complicated time. It is therefore important to call us first when you want to buy a new home.
Original article: www.vancourier.com
