Valley First

Expert Advice For Potential Homebuyers

The housing bubble: Valley First expert shares advice for potential homebuyers looking to enter the market
April 15, 2014

Penticton, B.C.—The Canadian Mortgage and Housing Corporation’s (CMHC) recent announcement of its May 1 premium increase has left many home buyers questioning the affect the increase may have on their bottom line. And, with the majority of respondents from BMO’s 2014 first-time home buyers report indicating their home-buying timeline has been delayed as a result of housing increases, Jim Lamond, senior vice-president of enterprise risk management at Valley First shares his thoughts on the implications these increases may have on the housing market.

“Almost every other year, we hear about how housing is not affordable for the average Canadian,” says Lamond. “It’s probably not a shock to those of us who live in this area that three of the most unaffordable housing markets in North America are in Vancouver, Victoria and Kelowna. While the Kelowna market has moderated and we’re not seeing the rapid pace of 2007, we do see pockets in Vancouver and Victoria that are overheated, which skews the average price of homes in those communities.”

However, as Lamond notes, it is unlikely that a market crash will occur in the near future as interest rates are still near historic lows.

“We may see some rollbacks and modest changes but I don’t foresee any dramatic decreases in housing values,” says Lamond. “If there are any, it will probably only affect higher-end areas like Vancouver or Victoria, but for the most part, I’d say that the Okanagan is fairly well-situated.”

While it has been stated that for the average Canadian homebuyer requiring CMHC insured financing, the higher premiums will only result in an increase of approximately $5 to their monthly mortgage payment, it’s just another straw on the camel’s back, Lamond says.

“Where there have been challenges, is with the changes to high ratio mortgage lending rules. These changes generally affect first-time homebuyers by reducing the maximum loan as well as decreasing the maximum amortization to 25 years, down from the previous 30 years. That, in addition of new restrictions to other CMHC rules, has been a significant impact to anyone in need of insuring their home.

“For example, first time buyers meeting the minimum requirements to purchase a $400,000 will now pay $285 more per month on their mortgage payment due to a 25 year amortization compared to a 35 year amortization available a few years ago,” says Lamond. “This basically means borrowers meeting the minimum requirements will now require an income about 17 per cent higher to qualify for the same house. That’s a big impact for many buyers. On the plus side, for those that can afford the higher payments they’re building the equity in their home much faster and can look forward to owning their home debt-free much sooner while saving thousands of dollars in interest costs.”

What does this all mean for potential homebuyers? Lamond says that essentially most millennials will need some sort of assistance to be able to buy in this market, whether that is through shared accommodations via suite rentals or financial support from family members.

“Over the next 20 years, there will be a significant transitioning of wealth from baby boomers to their children. Previously, we saw this transfer mostly through estate planning but now, more and more we’re seeing parents helping their children with part of the down payment or other forms of financial support earlier on.”

The best advice Lamond says, is for any potential homebuyer is to meet with his or her mortgage advisor to discuss all available options.

“Each situation is different and the options available to you may be different,” says Lamond. “Perhaps you have the ability to add a suite to your property that can help out with the mortgage, or maybe you’re eligible to withdraw from your RRSPs to help with your down payment. A mortgage advisor can help you sort through the many options and suggest the best one for you.”

About Valley First

Valley First is a division of First West Credit Union, B.C.'s third-largest credit union, which has 39 branches and 28 insurance offices throughout the Lower Mainland, Fraser Valley, Kitimat and Okanagan, Similkameen and Thompson valleys. Led by Launi Skinner, First West has $7.7 billion in assets under administration, more than 177,000 members and close to 1,300 employees.

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