Vancouver housing has reached unaffordability levels unprecedented since the early 1990s, and is currently sporting an insane median selling price of $1,108,345. As a result, measures are being taken to return the market back to “sanity”. According to the Housing Affordability Monitor published by the National Bank of Canada, a drop in prices over the course of next year is to be expected.
Peaking Unaffordability Prompts Tougher Measures
Considering the third quarter over the second quarter of 2017, Vancouver homes for sale experienced a whopping 5.5% price increase – five times the growth in Toronto and more than double that in Montreal. On a year-over-year basis, however, the growth was below average – just 9.3%. By comparison, Toronto and Victoria homes experienced price increases of 21.7% and 15.9%, respectively.
According to the Housing Affordability Monitor, a combination of factors, such as rising interest rates and tightening the eligibility criteria for uninsured loans, will lead to a drop in home prices, especially in Vancouver and Toronto.
National Bank economists foresee a 1% increase in five-year mortgage rates over the next year, a growth influenced by the Bank of Canada’s intention to keep on raising interest rates. While in the 1990s such an increase would have determined a 3.5% drop in national affordability, today this measure would translate to a 5.6% drop, representing an additional 60%.
As the Office of the Superintendent of Financial Institutions (OSFI) is working on measures that will change the qualifying criteria for uninsured mortgages, it is expected that all homebuyers, regardless of the size of their down payment, will have to meet stricter requirements, reports Business Vancouver. This means that even buyers with good credit ratings and larger down payments will find it more difficult to qualify for an uninsured loan and find mortgage financing.
Experts Divided over the Future of Home Prices
However, Ajay Soni, the president of the Canadian Mortgage Brokers Association, suspects that these measures may have a negative effect, eroding confidence in the housing market and real estate values. Furthermore, Soni predicts that the fall in home prices will become more noticeable only in the second half of 2018.
Overall, Soni remains sceptical regarding a drop in housing prices, mainly because the housing demand is strong despite the lack of supply.
Take a look at the graph below to see the difference in how much of their monthly income Canadians spent on their mortgage over the years in some of the nation’s most unaffordable housing markets.
Source: Business Vancouver