The Vancouver Real Estate market which has undoubtedly entered a correction period following home sales dropping to a six year low, and mortgage credit growth sinking to a seventeen year low, is now seeing lower prices across the board.

The latest performance in the Vancouver housing market can largely be attributed to OSFI’s mortgage stress test which chopped buying power by 20%. The policy which was designed to de-risk the Canadian banks after dishing out over $1.2 trillion worth of mortgage debt, is now being called an assault on the Canadian dream, limiting one’s ability to leverage themselves into the housing market near peak prices.

The removal of mortgage stimulus is hard to fathom, particularly considering how generous Canadian regulators have been over the past twenty years, allowing household debt to balloon to 100% of GDP, the most in the G7. A large portion of which was facilitated by CMHC through securitization and other methods. At one point, from 2007-2008 CMHC was insuring mortgages with 0% down and 40 year amortizations. When lending froze temporarily in 2008, the Canadian Government created the $69 billion dollar Insured Mortgage Purchase Program (IMPP) which allowed banks to exchange illiquid mortgage assets for bonds issued by CMHC.

CMHC insurance
CMHC mortgage insurance guarantees. Via Canso Funds

But alas, these are unprecedented times and the newly formed mortgage stress test has indeed kept some buyers out of the market with little sympathy. Particularly first time buyers who are being relied upon to support future valuations. This will be an important segment of the market to watch moving forward as first time buyers in Metro Vancouver made up 8.6% of all real estate transactions in October. In the Fraser Valley, first time buyers accounted for a whopping 13.5% of transactions.

First time buyers Vancouver
Source: BC Stats

The down payment for First time buyers has also come under assault. Amidst declining home prices and the new stress testing of home equity lines of credit, the Bank of Mom & Dad is drying up. Quite the conundrum for the young cohort, which per Will Dunning of Mortgage Professionals Canada, borrowed $4 of every $10 of their down payment from the Bank of Mom & Dad.

Perhaps a subtle reminder that regulators giveth and regulators taketh away.



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