Feb 2010 Benchmark House Price: $800,796
The REBGV benchmark house price reached $800,796 in February. The rise in listings puts us into a ‘balanced’ market condition according to the Real Estate board. Will we be able to maintain this ‘balance’? I suppose it depends on how much our market is driven by CMHC support and how new rules and higher interest rates affect those margins. Here’s some interesting math courtesy of reader bestplaceonmeth:
Based on $58,000 median household income in Vancouver using ING’s “how much can I borrow?” for 35 years (yes, 35 years – it’s what all the cool kids are doing nowadays). Also assuming no other debts (ha ha) and a conservative $250 a month for property taxes or condo fees or both.
Prior to April 19, qualifying at 1.95% variable rate:
YOU QUALIFY FOR A MORTGAGE OF $415,270 WITH 5% DOWN!
After April 19, now having to qualify at 3.89% fixed rate:
YOU QUALIFY FOR A MORTGAGE OF $313,880 WITH 5% DOWN!
Holy foreclosure, Batman! That’s a 25% haircut off current prices!
Now let’s fast forward to the end of 2010, 4 successive 1/2 point interest rate hikes and you now need to qualify at a rate of 5.89%.
YOU QUALIFY FOR A MORTGAGE OF $244,287 WITH 5% DOWN!
That’s 41% less than 10 months ago, and we’re just getting started.
See, I told you math was fun.
Now, who wants to go out and get into a bidding war?
UPDATE: It’s been pointed out that CMHC currently requires the 3 year rate to be used, so the difference is not as extreme as the above example. DoDo1975 clarifies with this math:
RSS 2.0 comments feed. Both comments and pings are currently closed.A quick calculation shows that a family with absolutely zero debt making $90k a year could borrow $533,721.32 over 35 years today. All else being equal, after April that number will be $456,311.49 or approximately 14.5% less. This 14.5% is constant across all income levels.
If interest rates on the 5 year prevailing rate also go up 1.5% in the future, this translates into a 28% decrease in the amount someone can borrow compared to today.
March 4th, 2010 at 6:07 am
@Drachen:
He may not care who pays him, but he certainly cares how much he gets paid, and that’s a % of the sale price.
Which is an incentive to work in the interests of the seller. Always. An incentive is not a guarantee, of course, but there’s a reason why agents who are hired to make a sale are paid on commission, whether is to sell RE, cars, or an actors’ services.
“I bought a house in Kits in June of 1994 for $389k. I sold in 2008 for $970k. Do you think that sort of return is sustainable? Of course it isn’t.” « Vancouver Real Estate Anecdote Archive Says:
March 4th, 2010 at 12:56 am
[...] March 2010 · Leave a Comment Patrick at vancouvercondo.info 3 Mar 2010 11:46 am – “Even the most lethargic investors realize this market has been played out. I bought [...]
March 4th, 2010 at 12:38 am
I am a lender worked in a couple of big banks. Currently,there is a big difference whether the homebuyer applies for verialbe rate or a fixed rate mortgage. Anyone applies for veriable rate mortgage now will be qualified based on three year posted rate. When the homebuyer applies for a fixed rate mortgage, if less than three years term, three year posted rate will be used; if for three years or longer term the real discounted rate will be used.
The new rule says anyone applies for a high ratio mortgage will be qualified based on 5 year fixed rate. Everyone assume it means 5 year posted rate. The tricky things is some credit unions aready started to qualify all clients based on 5 year posted rate. My current bank also said starting on April 19, we will use 5 year fixed rate for all clients. I spoke with my friends in other banks, they haven’t heard anything about this yet.
March 4th, 2010 at 12:16 am
I think an interesting analysis would be to graph the amount a family with static income and no other debt, adjusted for inflation could borrow based on the changing amortization lengths and GSD TDS ratios over the last 10 years. I am planning on using $120k as this is about the income need to qualify for a median SFH TODAY with $50k down!
To do this properly, I am hoping someone can provide me with the dates the GDS/TDS ratios changed as well as all dates when new amortization lengths starting being implemented. I also need to know if prior to 2002, the 3 year fixed rate was still being used to determine eligibility.
I suspect the correlation between this graph and the benchmark SFH in Vancouver will be high. Going from 8% 3 year rates with 32% GDS and 25 year amortization to 4%, 40% and 35 year amortization probably makes a huge difference.
The hopeful conclusion is that Vancouver pricing makes sense as long as interest rates never rise again, but since the government can only really set the amortization length and GDS/TDS ratios (can’t really fix long term rates) it should help predict where prices will go as interest rates rise. I would bet they can’t increase ams or the GDS/TDS ratios any more than they already are, so they can’t really do anything to prop the market up save finding a way to increase wages really fast.
Thanks to anyone who can provide this info.
March 3rd, 2010 at 10:54 pm
@DoDo1975: Thanks for the updated numbers, I’ve added them to the parent post.
March 3rd, 2010 at 10:46 pm
According to the finance department here presently the prevailing 3 year rate is used and the new rules will probably see the prevailing 5 year rates.
According to Google the definition is as follows:
Banks decide the rates of interest that they will pay on deposits, and the rates of interest they will charge their borrowers, on the basis of the prevailing base interest rate, which is in turn decided by the monetary authorities or central bank, the Bank of England in the case of the UK. Commercial rates will be affected by the term of the loan/deposit and the credit rating of the borrower/lender.
Therefore it will be the central banks 5 year rate that is used. This has the present 4.15% going to 5.39%.
A quick calculation shows that a family with absolutely zero debt making $90k a year could borrow $533,721.32 over 35 years today. All else being equal, after April that number will be $456,311.49 or approximately 14.5% less. This 14.5% is constant across all income levels.
If interest rates on the 5 year prevailing rate also go up 1.5% in the future, this translates into a 28% decrease in the amount someone can borrow compared to today.
Luckily, the local market is driven by rich people who don’t need mortgages or this would create a problem.
March 3rd, 2010 at 9:48 pm
@browntown:
I get the feeling that inflatable beaver is the only kind you ever get Browntown…
March 3rd, 2010 at 9:23 pm
oh yea eh nutslaps! better call in hellocopter ben to study a few canadien icon!
“inflatable beaver”
“t. ho’s roll up the rim”
“sid cosby”
“cmhc”
March 3rd, 2010 at 8:46 pm
Vancouver is the shitiest city on the planet and that my friends is why “Vancouver real estate will go down”.
March 3rd, 2010 at 8:04 pm
The realtor doesn’t care who pays the commission, he’s not there for the buyer OR the seller, he’s there to make a quick buck. If convincing the buyer to waive terms will make a sale go more smoothly realtors will jump to it eagerly.
They make Blackwater employees look cute and cuddly.