This simple condo buying strategy will save you $100,000
With the introduction of the new mortgage stress test effective January 1st homebuyers who previously would have qualified for a $650k mortgage will now only qualify for $530k. If they can’t find money for a bigger down payment then their buying power was instantly reduced by $120k.
Some savvy homebuyers saw the stress test coming and got pre-approved for a mortgage before January 1st. Consequently, they have $100,000 more mortgage power to bid on homes than you do.
Most pre-approvals expire after 120 days. So, until May, there will be a group of local buyers who can outmatch any offer you make on a home. Don’t try to compete against these buyers who have a temporary unfair advantage.
Get pre-approved now but wait until May to make your move. When the 2017 pre-approvals have expired and you will be on an even footing.
Market Forecast
Our market forecast for 2018 saw home prices rising only modestly in Vancouver as all three levels of government try to engineer a soft landing.
Most home sales take 2 to 3 months to close, so the statistics we see today are for sales made three months ago. If the full impact of stress tests won’t be felt in the markets until May, then it will not show up in reported statistics until August or September.
None of the 2018 forecasts take into account the planned measures by the BC Government to curb speculation.
Low Trust in The Government
Given the failure of past government measures, it is safe to assume most people living in Metro Vancouver don’t think the new measures will be effective and that high net worth investors and money launderers will continue to skew the market. This is very possible. Despite warnings from various levels of government since 2010 the real estate affordability crisis has spread to smaller markets like Nanaimo and Kelowna.
It is now recognized that in most of Canada housing affordability has become a problem and it is a something that government needs to fix.
Risk of Hard Landing
There is a real risk of over correction because the government attempting to bring about a soft landing and with each level of government adding its own measures, they may go too far. If government measures start to work, and quick money can no longer be made in the market, speculative money will leave, and then we are left with local demand.
The median household in Metro Vancouver can only afford a $350,000 1 BR apartment if we generously assume they are able to make a $100,000 down payment. That’s $300,000 short of the current benchmark apartment price.
If supply and demand normalize, home prices could drop dramatically. Then again, this same statement could have been made in 2010 when the price of an apartment was $370,000. At that time, Royal Bank’s Housing Affordability Report signaled Vancouver was at risk of being in bubble territory.
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