VANCOUVER (NEWS 1130) – Millennials will be the group hurt the most as a result of federal changes to cool the housing market, in the view of the BC Real Estate Association.
The purchasing power of some people will drop by up to 20 per cent, says the association’s Chief Economist Cameron Muir. He lays out this scenario — a family making $80,000 makes a five per cent down payment — now they can get a mortgage approval for about $500,000 and that will drop to $405,000.
This follows an announcement by Ottawa that mortgage rules will be tightened, starting October 17th. “That’s a huge hit in terms of affordability, and it’s going to have some ramifications, both for millennials, early move up buyers being squeezed out of the market, and also going to have an impact on overall market conditions,” says Muir.
He adds this will cause a drop in demand and eventually lead to price declines in some sectors of the market in certain communities. However, Muir points out that drop in demand will bring other effects, such as a slowdown in construction.
Muir says that could then lead to rapid prices rises in the future due to a shortage of supply.
But the Bank of Canada has come out endorsing the plan the feds have put forward.
“We are mindful that low interest rates can lead to a buildup in financial vulnerabilities,” Senior Deputy Governor Carolyn Wilkins said in remarks prepared for a speech in Quebec today. “As part of our financial stability mandate, we are monitoring very closely the high level of household indebtedness and housing sector activity. We think that, over time, the measures announced by the federal government on Monday will help mitigate risks to the financial system posed by household imbalances.”
Earlier this week, the Real Estate Board of Greater Vancouver released home sales figures for the month of September, which showed sales were down but prices were up. In total, 2,253 homes exchanged hands last month, which is a decrease from the 3,345 sales that was recorded in September of 2015. While the MLS Home Price Index benchmark for all residential homes across the region is $931,900, which is a 28.9 per cent increase compared to the previous September.