Tougher mortgage qualification rules are “unduly suppressing” home sales in Canada by disqualifying 18% of buyers who cannot pass the stress test despite being able to afford their preferred home, a new report concludes. Read the Globe and Mail article here.
We've got a material tightening in Canada's credit conditions that we haven't seen in a long time. Tight credit lending will take a lot of velocity out of the Greater Vancovuer and Fraser Valley housing markets that are in decline and look to be continuing into decline.
The OECD warned that Canada is at the top of advanced and emerging markets with the highest household debts, and we are experiencing an incremental interest rate hikes because of international cost of capital going up.
The very tight due diligence and implementation of the Government's current stress test rules by Canadian Banks and higher interest rates have resulted in many borrowers not being approved for the loans they needed, or only approved for much lower amounts.
New Housing Supply
BCREA reported that there are nearly 44,000 new housing units under construction in Metro Vancouver, 60 per cent above the previous peak of 27,000 units recorded in 2008. In addition, approximately 24,000 housing starts are expected both this year and next in Metro Vancouver.
Financing For Presale New Condos
The new condos due for completion in Greater Vancouver and Fraser Valley are estimated to be around 12,000 units a year. Many of the concrete highrise condos sold in 2017 were reported to have been sold at prices from $1,000 to $1,200 per sq ft. And in 2018, many of the presale condos were sold at prices over $1,200 per sq ft.
Many of the 2016 presale condos are due for completion now. It's these presale condo buyers which are probably the most likely facing a forced selling situation where, they've made a commitment a few years ago, on the expectation that they could borrow X amount of dollars. They can only get certain % of the values of their condos for financing, leaving them with a material shortfall.
For presale buyers not having access to capitals to cover the loan shortfalls, they will have to sell off their presale condos. They're leave with the difficult choice to stump up the extra cash, or sell their condos in a hurry at market prices which may not be favourable in a declining market. And if this happens en masse, forced selling, can have a very asymmetric outcome on markets and pricing.