Right now, many people aren’t buying what’s being built, and some projects are being pulled entirely. Developers are feeling the strain, with some even facing foreclosure. A recent survey by the Canadian Home Builders’ Association showed negative sentiment for eight consecutive quarters, with most members attributing it to high interest rates. In fact, 61% of builders plan to construct fewer homes in 2024 than in 2023, with many slashing their estimates by half.

At the same time, report after report highlights the number of housing units that must be built to “restore housing affordability.” Canada Mortgage and Housing Corporation (CMHC), the Parliamentary Budget Officer (PBO), and Oxford Economics have all released projections. Oxford Economics estimates we need to build 420,000 homes annually for the next decade. The PBO projects 436,000 homes per year until 2030, which is 80% more than the total number of homes completed in 2023. And CMHC? They estimate 637,000 homes are needed annually until 2030. As you can see from the graph below, historically, up until 2021, we have never built more than 260,000 homes a year.

But here’s the issue: when the cost of raw materials, labor, and fees are already sky-high, how does building more help? Meanwhile, the cost of everything continues to rise. Just last year, Metro Vancouver increased development cost charges for a typical residential lot to $34,133 (from $10,027) and to $20,906 (from $6,249) for each apartment unit. This is not helping.

Other factors are also worsening housing affordability—migration to big cities, wage suppression, increased immigration, and opening housing markets to the global wealthy. Unless the government does a massive restructuring of the budget and divert a large portion to build subsidized housing, affordable housing is a dream.

Currently, high interest rates, restrictive rental regulations, and the foreign buyer ban have dried up demand for new condos. This has put immense pressure on developers, especially smaller ones or those with high levels of debt. For many, the carrying costs have become unsustainable, and some developers will go out of business. As the economy slows, we may see some discounted deals as builders try to recoup costs or cut losses.

Larger developers can afford to rent out units or keep them vacant for now. However, it won’t take long for this slowdown in construction to cause a housing shortage, driving prices upward once again. Builders will continue to pull back until they see a clear path to profitability—and affordable prices won’t be part of that equation.

The post When Will We Get Affordable Housing? first appeared on John Chan Mortgages.

Despite alarming headlines about rising credit delinquencies, the actual numbers remain low compared to other countries and our own historical standards. This may not pose a serious threat to the overall economy, but for those affected, it’s a personal crisis. Unmanaged debt can quickly erode your financial well-being, so addressing it early makes it more manageable.

The first step is to review your spending and cut unnecessary expenses. Next, explore additional sources of income, whether it’s taking on a part-time job or other opportunities. If you own a home with some equity built up, there’s an additional option: consolidating your debt by refinancing your mortgage. Reach out to a mortgage broker to help you assess the options. They can compare the potential benefits of paying a penalty to get a new mortgage versus taking on a second mortgage. Keep in mind, to qualify for refinancing, you’ll need sufficient income and a healthy credit score.

This underscores the importance of acting sooner rather than later when managing your finances. By the time you’ve maxed out credit cards or started missing payments, your credit score may be too low to qualify for low-rate borrowing. Debt consolidation can help reduce interest costs, lower your monthly expenses, and get you on track to paying off your debt faster. Click on the icon below to find out more.

The post Lower Rate = Slowing Economy = Rising Unemployment = Trouble first appeared on John Chan Mortgages.

The sales-to-active listings ratio for all categories dropped again month over month. The sales-to-active listings ratio is a measure of supply and demand. Falling ratios indicate downward pressure on prices. As you can see from the table below, prices have been decreasing in all categories over the past few months, though the decline seems to be slowing compared to the previous month.

The Bank of Canada recently lowered its overnight rate by 0.25%, which means that banks’ variable-rate mortgages will also decrease by the same amount. In response, bond yields have fallen, and since fixed mortgage rates are closely tied to bond yields, fixed-rate mortgages may also decline in the near future.

Typically, September sees an uptick in sales activity, so this could help boost sales. However, the impact may be limited, as many are anticipating further rate cuts in the coming months and may decide to wait.

Have a great month!

The post September 2024 Vancouver Real Estate Review first appeared on John Chan Mortgages.

This increase in inventory has led to a drop in both the sales-to-active listings ratio and the benchmark price in all categories on a month-over-month basis. The sales-to-active listings ratio is a measure of supply and demand, with lower numbers indicating a weaker market and an increased likelihood of price decreases. A weakening trend in the sales-to-active listings ratio began four months ago, and the impact is now visible in the price drops.

Recent weak US employment data has accelerated predictions of rate cuts. In mid-July, a Bloomberg survey of economists expected the Bank of Canada’s overnight rate to decrease from the current 4.5% to 3% by the end of 2025. Now, that timeline has been pushed up by six months. If the survey is correct, the Bank of Canada will drop the rate by 0.25% in each of the next four meetings, resulting in a 1% decrease by January 2025, reaching 3% by mid-2025.

This is great news for people with variable-rate mortgages, especially those with variable payments. Whether this will revitalize the real estate market is less certain.

Possibly, but a weak economy, higher unemployment, and rules against flipping, foreign ownership, and short-term rentals will continue to pose challenges.

Have a great the month.

The post July 2024 Vancouver Real Estate Review first appeared on John Chan Mortgages.

Insured mortgages allow buyers to put down less than 20% of the purchase price by paying an insurance premium that covers losses in case of mortgage default.

Will This New Program Impact the Market and Help You Qualify?
This new program is specifically designed for certain buyers and sellers. To qualify, the property’s price must be under one million dollars, which can be limiting in markets like Vancouver. Additionally, pre-sale condo purchases typically require a 15% to 20% down payment, meaning this program is unlikely to impact the pre-sale market. People who already have a 20% down payment won’t need this program.
However, for vacant, move-in-ready condos, this program could be beneficial. Let’s look at an example to understand how it might help:

• Condo Price: $800,000
• Without Mortgage Default Insurance: Requires a down payment of $160,000.
• With Insurance: Minimum down payment is $55,000, calculated as 5% of the first $500,000 and 10% of the remaining purchase price.

Financial Breakdown
Assuming the following:

• Property Tax: $2,500 annually
• Condo Fee: $500 per month
• Interest Rate: 4.64%
• Amortization Period: 25 years
• Down Payment: $55,000

You would need a family income of $180,000 to afford this home. The insurance premium is 4%, adding an additional $29,800 to your mortgage. This results in monthly payments of approximately $4,370.
Impact of a 30-Year Amortization
If you apply for a 30-year amortization instead:

• Monthly Payment: Decreases to $3,990
• Alternative Benefit: You could keep the monthly payment around $4,370 and qualify for a property that is about $50,000 more expensive.

Conclusion
Given the narrow target audience and the marginal increase in purchasing power, the overall impact on the market is expected to be small. However, for those who qualify, the 30-year amortization can offer some financial flexibility and make homeownership more accessible.

The post What is the Impact of the New 30 Year Amortization? first appeared on John Chan Mortgages.

The seller can sue for losses based on the original selling price of your purchase agreement. If the seller sells the property for less than the price on the original contract, they can sue the would-be buyer for the price difference.

In a recent case, the would-be buyers submitted an unconditional offer, only to later claim they could not secure a mortgage from the bank. Often, this is merely an excuse. Regardless, this situation could easily have been avoided by consulting with a mortgage broker before making any offers, especially unconditional ones.

The seller eventually sold the property for $375,000 less than the original agreement. The defendants argued that the seller should have renegotiated with them and reduced the price or waited until the market improved. These arguments are flawed. The buyers should have completed the sale and waited for the market to improve before selling the property themselves. Ultimately, the judge ordered the would-be buyers to pay the $375,000 difference.

In another case, a would-be buyer falsely claimed they couldn’t obtain a mortgage but later purchased two other properties. The buyer believed that because the contract was a one-page document handwritten in Chinese, it would be unenforceable in court. However, the judge found the contract enforceable and awarded the seller $408,000.

The lesson here is that you must do your due diligence before signing any purchase agreement. Once you sign, you are committed, whether the market price goes up or down. It is crucial to understand the binding nature of contracts and the responsibility involved in honoring your agreements. While market fluctuations can be unsettling, backing out of a signed purchase agreement is financially unwise. Buyers should ensure they are fully prepared and committed before signing a contract to avoid costly legal battles.

If you want more details of these cases you can find them here:

https://bc.ctvnews.ca/b-c-buyers-who-backed-out-of-home-purchase-ordered-to-pay-more-than-350k-in-damages-1.6955911

https://bc.ctvnews.ca/buyer-who-moved-into-b-c-home-before-sale-was-complete-ordered-to-pay-408k-1.6854823

The post Consequences of Banking out of a Purchase first appeared on John Chan Mortgages.

While the article implies that equities might be the better option based on recent price movements, focusing solely on recent returns is a bad investment strategy. You need to look at the big picture. Long term.

The report used an average of all residential real estate across Canada, encompassing cities like Vancouver and Toronto, but also smaller towns like 100 Mile House and Spuzzum. Since you cannot buy this “average house”, you need to look at the historical return of the specific area you are considering for purchase.

In 2020, an analysis of returns over the past 25 years showed that the S&P/TSX return and the average real estate return have remained relatively stable. Vancouver’s return over the last 25 years was only 5.5%, but even if it were 5%, it wouldn’t matter. The reason? Leverage.

You can buy a $500,000 property with a $25,000 down payment, or 5%. No one can purchase $500,000 worth of Microsoft shares with a 5% down payment. Even if it were possible, the volatility would be intolerable. If the stock price dropped 5%, the equity position of your portfolio would go to zero. The brokerage would require more money immediately to maintain that 5% position, or they would sell your position, solidifying the loss.

Between December 6, 2021, and October 31, 2022, Microsoft shares dropped 35%. If you were able to buy those shares with a 5% down payment like a house, you would have lost $150,000 on paper if you bought $500,000 worth of stocks. But you would need to come up with $166,250 to prevent the brokerage from selling your Microsoft shares. This doesn’t happen with a house, allowing you to ride out the ups and downs. After 25 years or so, you will have it all paid off, providing an asset that can generate monthly rental income indefinitely.

Also, because you only put down 5%—which is 20x leverage—your 5% return is actually 100% [See the illustration]. And if this property is your principal residence, there is no capital gains tax. For equities, the inclusion rate is 50% of the first $250,000. That is, if you made $100,000, you would add $50,000 to your annual income to calculate your income tax.

There are many ways to argue for equities over real estate but rate of return is not one of them. While it might be entertaining to write an article raising doubts about real estate investment versus equities, in reality with the leverage and tax advantage of a principal residence, there is no comparison.

The post Invest in Real Estate or the Stock Market? first appeared on John Chan Mortgages.

Consequently, they are putting their houses up for sale. However, buyers seem to feel that the 0.25% drop in the rate isn’t significant enough. As a result, sales remain 23.6% below the 10-year seasonal average, while inventory is 20.3% above the 10-year seasonal average.

The sales-to-active listings ratio continues to decline across all categories, leading to a drop in benchmark prices. This ratio measures supply and demand; a 20% ratio means that 20 units are sold for every 100 units in inventory within a month. Traditionally, a ratio between 12% and 20% is considered a balanced market with stable prices. However, as seen from the table, this varies by category. Following the trend may offer more predictive insights. The trend suggests that unless new stimulus arises, there will be continued downward pressure on prices.

Another factor contributing to price pressure is the large number of upcoming mortgage renewals. As you can see from the chart that about 35% of the mortgages at the big banks will renew in 2026 and another 22% in 2027. It is expected that some renewals will result in monthly payments high enough to force some owners to sell. While some predict this will have a significant impact, I believe lenders and the government will adjust rules if necessary. The government supports maintaining real estate prices, as evidenced by allowing variable rate mortgage borrowers to continue making payments that don’t cover the monthly interest.

If banks adhered strictly to the rules, more people would have sold or defaulted. Additionally, as the Bank of Canada continues to lower rates, payment increases will be lessened.

Have a great month!

The post June 2024 Vancouver Real Estate Review first appeared on John Chan Mortgages.

In a recent court case covered by the Globe and Mail, a tenant was held liable for this tax when the government failed to collect it from the landlord. He had to pay 6 years of back taxes and interests. Imagine telling your landlord you’re holding back 25% of their rent! Naturally, a social media storm erupted.

To her credit, the minister responsible tweeted within days of the storm that this was a special case and tenants usually aren’t responsible for a foreign landlord’s tax liabilities. No details were given on why this case was special, and the law is still on the books. So, it looks like it’ll be a while before this mess is sorted out.

The post Tenants Don’t Have to Pay Taxes for Foreign Landlords first appeared on John Chan Mortgages.

Imagine an elderly couple who have lived in their family home for many years.
They don’t want to move, and their home, valued at $1.25 million in the lower mainland, is fully paid off. If the home’s value appreciates by 3% annually, in 10 years, it would be worth $1.68 million. If they passed away then, their two kids would each inherit $840,000. That’s a substantial down payment, but by that time, the children would be 45 and 48 years old.

Now, what if the parents took out a reverse mortgage at 7% so their children could get a down payment now? They could qualify for $512,500. If each child receives $250,000, they could use it as a 20% down payment to buy homes worth $1.25 million each, matching the value of the parents’ home.

After 10 years, assuming the homes appreciate at 3% annually, all three properties would be worth $1.68 million each. If the children have a 5% mortgage, the equity (the property’s value minus the mortgage loan) in each child’s home would be $947,000. The parents’ home, assuming no interest payments were made on the reverse mortgage, would have $670,000 in equity. So, each child would effectively inherit $335,000, but they would have lived in and built significant equity in their own homes for 10 years.

This scenario shows that, despite the higher interest cost, a reverse mortgage can be beneficial. However, every situation is unique, and it’s essential to do the math for your circumstances. Reverse mortgages carry higher interest rates and aren’t suitable for everyone. A home equity line of credit (HELOC) might be an alternative, but be aware that some lenders require a surviving spouse to qualify if one party dies, which might not be feasible if the intent is for the surviving spouse to remain in the home.

If you want to explore various scenarios and see what works best for you, feel free to contact me. I can help you navigate the options and make an informed decision. if you want to read more about it first, follow this link: Reverse Mortgages | Alternative Lending Canada

The post Using a Reverse Mortgage to Help Your Children Buy a Home first appeared on John Chan Mortgages.