Mortgage effect delayed by pre-approvals
January 25, 2018
Even in high-priced Vancouver, the effect of an interest rate hike in January and the introduction of a federal mortgage stress test failed to cool the market quickly.
The Bank of Canada pushed its interest rate to 1.25 per cent on January 17, the highest level in nine years, and, since January 1, all buyers are now subject to a federal mortgage stress test that forces them to qualify at lending rates 2 per cent higher than what is actually available.
“We sold three condos in the last seven days and we got multiple offers on all of them,” said Adil Dinani, an agent with Royal LePage West in Burnaby on January 17. One of the condos was listed at $699,000 but sold for $53,000 more after multiple bids were received.
Dinani said Metro Vancouver is now seeing a “slingshot” affect as more buyers flood into the market for fear of even higher interest rates coming.
“The narrative around high demand and supply in the condo market is continuing,” he said, adding the strong 2017 sales momentum has carried into this year.
A number of buyers scrambled to get pre-approved mortgages in December, a move that protects them from mortgage rate increases for 120 days, he added.
“I see a further upside on prices,” Dinani said, “especially in the condo sector.”
Lindsay Meredith, professor emeritus at the Simon Fraser University Beedie School of Business, said the hike in lending rates “will not make a hell of a lot of difference” in Vancouver or other affluent cities. But, he said, it will hammer buyers in lower-priced areas.
“Those buyers are more likely to be entry-level and they are already in hock up to their eyebrows,” Meredith said. “They are the ones who are packing record-high debt” and would already have problems qualifying for mortgages.
Meredith expects to see at least two more Bank of Canada interest rate hikes this year, which he said will drive many marginal home buyers out of the market all together.