People employed or invested in The Greater Vancouver and Lower Mainland Real Estate Market and those who are particularly concerned with the potential “bubble burst” have now focused their sights on Australia for insight. Australia has been burdened with very similar elevated levels of housing unaffordability and above comfortable amounts of household debt as BC Canada… predominantly in the major cities like Sydney and Melbourne. Like Vancouver and The Fraser Valley of BC a clampdown on illegal foreign money from foreign buyer taxes combined with stricter domestic mortgage lending policies have sent home prices tumbling, triggering warnings over a possible credit crunch.
Fact: Australian household debt has reached 122% of GDP in early 2017 (25% higher than 2008 US Subprime levels), and inflating home prices to 3.6 times their 1971 levels, restricting credit at these levels is a painful exercise.
Housing prices are dipping lower and lower in Australia’s major cities… policy makers are starting to do what they can to “to re-inflate the bubble.” This is all taking place, of course, within just a week before the federal election in Australia and it now appears that Australia’s Liberal National Party has made promises to help 10,000 first homebuyers into the market by topping up their 5% deposits with a government guarantee for 15% of the loan. Following the election results which saw the re-election of the Liberal Party the Aussie Banking regulator (APRA) doubled down, easing lending standards once again.
In Australia the past 4.5 years, APRA has required banks to test prospective borrowers against the higher of either an interest rate of 7 per cent, or a 2 per cent “buffer” over the loan’s actual interest rate (stress test), to ensure they could meet repayments if rates rise. Last week they rid themselves of that policy, thus bringing down the minimum interest rate serviceability buffer from 7% to a level determined by banks and other lenders.
How does this relate to BC and will BC follow suite in the new elections?
All the way on the other side of the world policy makers in Canada are facing a similar situation and may want to remove the B-20 mortgage stress test and ease credit once again, particularly because of a strong national economy and the upcoming Federal election. Already, Conservative leader Andrew Scheer has been heard making statements of making OSFI’s mortgage stress test go away. Andrew S. was at the at the Canadian Home Builders Association National conference and made mention that he’s “absolutely committed” to reviewing the stress test. Noting, “Clearly there are some major unintended consequences that this new policy has had.”
“The Canadian Home Builders Association, the Mortgage Professionals Association of Canada and the Ontario Real Estate Association have all called on the government to ease the stress test and restore 30-year mortgage amortizations. Either of these would have added to housing demand across the board (not just targeted to a small segment) and price inflation of as much as 1-2% in our large cities.
Both ideas would also stimulate increased borrowing. Paul Taylor President of the Mortage Professionals of Canada recently criticized the First Time Home Buyers Incentive to this Committee last week in suggesting that we should actually encourage people to borrow 4.8 times income. Which may be a bit of a push toward excessive debt ratios and could lead to a similar mortgage crisis we saw in 2008.
So in turn do not be surprised if there is an economic stimulation from the government to help stop the bubble from bursting while the economy grows here in BC and throughout Canada. The pipeline is most likely on its way creating jobs and stimulating foreign investment, trade wars on steel tariffs are no longer present with the United States and job rates are at an all time high. It wouldn’t be the worst idea to stimulate the the housing sector as well as the domestic real estate owner are definitely feeling the pinch and could use some help with the current market. It is likely for CMHC to do a first time home buyer incentive where they will be matching up to 5% of your downpayment interest free to help with domestic first time buyers getting into he market that over time with a stable economy will only go up in value.