A report indicates that the ongoing correction in the Canadian housing market is driving out two types of home buyers.
It is first-time buyers and overseas buyers who are feeling the effects of a combination of factors, from higher interest rates to government housing policies.
And in the vacuum created by this soothing market comes a class of winners.
“This can prove to be a boon for investors,” Dexter Realty said in its report Monday, Aug. 8.
The report was prepared by Kevin Skipworth, who is the partner and chief broker of the Vancouver Realty Company.
Investors refer to people “buying homes for rental income or appreciation”.
The report notes that investors “traditionally” account for about 20% of real estate transactions in Metro Vancouver.
Sales slowed following four interest rate hikes by the Bank of Canada starting in March 2022.
From the historic low of 0.25% since the start of the COVID-19 pandemic in 2020, the central bank cut its interest rate to 2.5%.
The report notes that determined buyers, including those planning to live long in their properties, will not be deterred by higher mortgages.
The document points out that the average five-year fixed-rate mortgage at Canada’s six major banks has increased by “only 1.4% in the last six months”.
However, the cooling market has had some losers.
“During the first half of this year, the number of first-time home buyers in British Columbia fell 46% compared to the same period last year, representing only 4,426 buyers,” said Dexter Realty.
He cited the federal government’s mandatory stress test as a “key reason.”
It “forces buyers to qualify for an unrealistic five-year mortgage rate that many first-time buyers struggle to meet.”
“Instead of buying, more than 4,000 will remain tenants,” Dexter Realty said.
Buyers must pass the stress test, which is the greater of their contract rate plus two percent or the Bank of Canada mortgage qualification rate of 5.25 percent.
With fixed rates now above four per cent, that means buyers applying for this type of mortgage will need to qualify at a higher rate than the central bank’s qualifying mark.
In the report, Dexter Realty noted that foreign buyers of homes in Metro Vancouver “could represent 6% or more of all sales” before a 15% foreign buyers tax was passed in 2016.
The tax has been increased and now stands at 20% of the market value of the property.
The Vancouver real estate agency said foreign homebuyers “now represent just 1% of transactions in Metro Vancouver,” according to figures from the provincial Department of Finance.
In addition to the 20% tax in the province, the federal government is also imposing a two-year ban on foreign purchases in January 2023.
“So investors who buy investment condominiums now benefit from lower prices, zero competition from global investors, a captive tenant audience, and higher rental rates,” he said. noted Dexter Realty in the report.
Additionally, “investors are realizing that, despite the government’s best efforts to increase supply, housing starts in Metro Vancouver in July were down 23% from a year earlier. and the new scarcity of strata is getting worse.”