Skip to content

Weekly Buzz: Mortgage rates and Vancouver residential market

Western Canada's top commercial real estate stories, featuring coverage on the latest Bank of Canada mortgage rate increase and residential sales


The week’s top stories focus primarily on the residential real estate market in Vancouver, from increasing mortgage rates to home sales statistics. For the fifth time since last summer, the Bank of Canada has raised the interest rate, amidst slowing home sales. But despite slowing sales, Metro Vancouver’s real estate market remains highly vulnerable to overheating and overvaluation.

Here is Western Investor’s pick of the top commercial real estate stories published this week.


Fear of interest rate increases rising in B.C.: report – Business in Vancouver

Forty-one per cent of B.C. residents report they are worried they will have financial difficulties if rates continue to go up.

Interest rates have been creeping up over the past year, and British Columbians are becoming increasingly anxious about their finances, according to the results of a new MNP survey.

The poll found 41 per cent of B.C. residents are worried they will have financial difficulties if rates go up; this is three percentage points higher than in June. The news comes just a day prior to Bank of Canada's most recent overnight rate increase from 1.5 per cent to 1.75

Many poll respondents – 45 per cent – said they were already feeling the effects of higher rates, compared with 37 per cent in June. Almost half of all those surveyed – 48 per cent – say they are becoming more concerned as time goes on.

“It’s been over a year now since the first interest rate increase, and as rates continue to inch higher, more British Columbians are feeling anxiety about the increase in debt carrying costs,” said MNP Ltd.’s Linda Paul.

“With the cost of living in the province trending upward along with the pace of debt accumulation, we are going to see a more immediate and significant effect on borrowers with rate increases in the future.”

Despite these numbers, B.C. respondents say they are optimistic about their debt situations. Almost a quarter (24 per cent) of those polled say their current debt levels are better than they were a year ago, 38 per cent say they expect they will be in better shape next year and 46 per cent say they think their debt situations will improve over the next five year.

[Business in Vancouver]


Bank of Canada hikes interest rate to 1.75% - with more increases to follow – Western Investor

The increase is the third this year and fifth since July 2017, with more rate raises expected to follow as soon as December

The Bank of Canada has once again increased its overnight lending rate, with analysts forecasting future rate increases moving forward.

The interest rate is now placed at 1.75 per cent as of Oct. 24, following its fifth hike since July 2017. 

“The Bank has forecasted that rate increases should be expected going forward. The pace of these increases will be determined by household's ability to absorb the higher rates and the rate of inflation,” said James Laird, co-founder of Ratehub Inc. and president of CanWise Financial. “The Bank seems pleased that household credit growth has moderated, and the housing market is showing signs of stabilization across the country."

Penelope Graham of real estate website Zoocasa said the rate hike will affect anyone taking out a mortgage, whether fixed or variable, as the new target increases the rate at which mortgage applicants have to qualify. Under the “stress test” introduced in January 2018, all new mortgage applicants have to qualify at the Bank of Canada posted rate, or their contracted interest rate plus two per cent, whichever is higher.

Graham stated, “As the Bank of Canada has opted to hike its trend-setting interest rate in its seventh announcement of the year, it will once again become more expensive for borrowers to qualify for, and carry, a mortgage. The ripple effect of this and consequent rate hikes on housing affordability will be felt most strongly by first-time home buyers, particularly millennial buyers, most of whom have never experienced interest rates this high in their lifetimes.”

The Bank of Canada said its key interest rate “will need to rise to a neutral stance” to keep inflation close to the target rate. Inflation is currently 2.2 per cent, having been reduced from the 2.5 per cent seen recently, and the BoC pegs “neutral” at around three per cent.

The Bank of Canada’s next scheduled date for announcing the overnight rate target is December 5, 2018.

[Western Investor]


Vancouver residential land rush may be over as housing market slows – Business in Vancouver

All signs point to the end of the residential land rush in the Lower Mainland, according to a presentation given by the Urban Development Institute.

Land rush over

All signs point to the end of the residential land rush in the Lower Mainland – though Michael Ferreira of market research firm Urban Analytics Inc. didn’t use those exact words in his presentation last week to the Urban Development Institute (UDI).

Toronto real estate consultancy Altus Group Ltd. reports that Metro Vancouver residential land deals worth $1 million and up stayed even at $2.9 billion in the first six months of both 2017 and 2018. The number of transactions in the period increased by five, from 438 last year to 443 in 2018.

The value was enough to make land deals the top asset class for investment, but Ferreira drilled down into the trends for residential sites and pointed to lower values and volumes.

Vancouver, for instance, saw 17 fewer land transactions in 2018’s first eight months versus the same period a year ago. The deals totalled 22 per cent less than those in 2017. North Vancouver saw an even more dramatic drop, with 42 fewer land deals and a 57 per cent drop in the aggregate value.

Moreover, buyers are being given more time to undertake due diligence and speculators are dropping out of the market.

The one exception to the rule – also noted by Altus Group – is the appetite for transit-oriented sites. “The continued acquisition of residential development sites near transit hubs” was an underlying thread in activity Altus Group tracked. The trend bore itself out for Ferreira in stronger activity in Coquitlam, which has opened up thanks to the Evergreen rapid transit line. The municipality saw an additional 12 deals in 2018’s first eight months versus a year earlier, while deal values climbed 78 per cent.

Slower times

A year ago, Ferreira kicked off his state of the market address to UDI members warning of buyer fatigue as pricing for new residential units sailed past $3,000 a square foot downtown, $1,500 in Mount Pleasant, $1,100 in Metrotown and $750 in Surrey (“of all places”).

Sensing a slowdown in the market – one Ferreira expects could extend into 2020 – he spoke of a time 10 years ago when the approaching financial crisis nixed the launch of a Yaletown condo tower priced at $900 a square foot.

“[It] would be considered cheap in today’s market,” he said.

Nevertheless, developers appear to have been taking heed of slower sales driven by taxed and stress-tested buyers, and prices that have continued to defy government moves to keep them in check.

With markets finding their ceiling, some developers, Ferreira said, have resumed offering buyers and even realtors incentives to encourage deal-making for the first time in four or five years.

Onni Group, for example, saw pricing in the Brentwood area peaking at $1,100 a square foot and instead opted to bring the first tower of its Gilmore Place development on the market at $1,000 a square foot and create enthusiasm for the project before gently moving up pricing with the second and third towers.

Similarly, Cressey Development Corp. initially priced its Chelsea project in the Cambie corridor at $1,500 a square foot to develop the momentum needed to bring final sales closer to the neighbourhood peak of $1,600 a square foot.

[Business in Vancouver]


Metro Vancouver housing market highly vulnerable despite easing prices – Western Investor

Although home price growth is moderating in Vancouver, evidence of overvaluation and overheating remains high for 2018's second quarter

The Metro Vancouver housing market is still exhibiting signs of overvaluation as home prices continue to outpace local income growth, according to a new Canada Mortgage and Housing Corporation’s report released today (Oct. 25).

The federal housing agency’s quarterly Housing Market Assessment, which for this edition assessed market activity in 2018’s second quarter, has pegged the region as highly vulnerable for ten consecutive quarters.

Although home price growth is moderating in Vancouver, evidence of overvaluation and overheating remains high as price growth over the past few years has accelerated past what is affordable to most household incomes.

“House prices are higher than the price levels supported by the fundamentals,” the report states. “However, with price growth moderating and the young adult population growing, the conditions of overvaluation are easing in all four centres (Vancouver, Victoria, Toronto and Hamilton).”

The quarterly Housing Market Analysis analyzes real estate markets across Canada, assessing a combination of four key risk factors: overheating, when demand for homes in the region outpaces supply; sustained acceleration in house prices; overvaluation of house prices in comparison with levels that can be supported by economic fundamentals; and overbuilding, when the inventory of available homes exceeds demand.

CMHC reported Vancouver as exhibiting three of the four risk factors for the year’s second quarter: Overheating, overvaluation and price growth acceleration. However, low inventory of new home construction and sales has led to little evidence of the fourth risk factors – overbuilding.

[Western Investor]