Can anything slow down Vancouver’s housing market?

The federal government announced new minimum down payment provisions last week, but they may not have much of an impact—not yet, at least

December 14, 2015

By Max Fawcett

How much air can you fit inside one housing bubble? It sure seems like that’s what we’re trying to find out in Vancouver right now, and the latest set of data suggests we’re pushing the limits even further than anyone thought possible. According to data from the Real Estate Board of Greater Vancouver, November saw the second highest number of home sales in history, and they were 40.1 per cent higher than a year earlier. Not surprisingly, prices are up on a year-over-year basis too—17.8 per cent for all residential properties in Metro Vancouver, 14 per cent for apartments and 22.6 per cent for a detached homes.

That might help to explain Finance Minister Bill Morneau’s semi-shocking decision today to raise the minimum down payment needed to qualify for CMHC insurance. Beginning in February, CMHC will require at least a 10 per cent down payment on the portion of a mortgage that it insures that exceeds $500,000 in value—in other words, virtually everything for sale in Vancouver. As a result, if someone wants to purchase a home that’s worth $800,000, they’ll need at least $55,000 down (five per cent on the first $500,000, which equals $25,000, plus 10 per cent on the remaining $300,000, which equals $30,000). That could push some buyers out of the market, and perhaps put downward pressure—or at least contain the upward pressure—on home prices in markets like Vancouver and Toronto. “We recognize that, specifically in the Toronto and Vancouver markets, we have seen house prices that have been elevated,” Morneau told reporters on Friday, “and we want to make sure we create an environment that protects the people buying homes so they have sufficient equity in their home.”

Ben Chimes, a local realtor, doesn’t think the changes are going to do much to move the market in Vancouver. “I think the impact will be negligible, honestly. There are so few buyers that I’m working with over that price point that are putting down less than 10 per cent. A huge proportion of them are still putting down 20-plus per cent. Granted, a lot of that is gifts from family members to get them there, but there’s not a lot of five per cent purchases that I see.” What’s behind the decision, then? He thinks it could be about the CMHC trying to protect its own portfolio. “I don’t think it’s so much about trying to cool prices, per se. But I think the CMHC in general is concerned about its leverage, and it is highly leveraged as an institution. My gut feeling is that they’re more concerned about what’s going on behind closed doors in their own portfolio than what’s going on in the actual marketplace and trying to have any impact on it.”

Either way, though, the combination of higher minimum down payments, a weak Canadian economy and the prospect of interest rate increases south of the border—ones that will surely trickle into Canada’s bond market—are going to make 2016 a very interesting year for Vancouver homeowners.

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