Saturday, 8 February 2014

Some (rough) thoughts on Vancouver RE for 2014 Spring

Unlike 2013, I'm not going to do a "%" prediction of RE price changes for the whole year. There are too many factors which can cause short-term changes of RE market. in 2014 I will try to do a RE status update and projection every 3-4 months.

Life and work have been extremely busy (and will continue to be so for the better part of 2014), please excuse me for the relative slack.

POSITIVE Short-Term Factors for Vancouver RE: SPRING 2014
1. Fixed rates has been trending down, however not as low as Spring 2013 levels. Variable rates will likely continue to stay similar to current levels for 2014.

2. Positive/bullish RE sentiment carried over from Summer/Fall 2013.

3. Depreciating Canadian Dollar makes Canadian RE "cheaper" for foreign investors.

4. So far, OSFI & CMHC rule changes have had only moderate impact. Banks & Credit Unions can circumvent some rule changes (eg offering 30Y uninsured mortgages, cash-back mortgages, etc)

5. CRA starts tracking international money transfers of >$10000CAD by 2015. It is possible people will transfer larger sums of money into Canada (eg from China) in 2014, before CRA's new system kicks in.

6. Canadian government plans to increase enrollment for international students.

NEGATIVE Short-Term Factors for Vancouver RE: SPRING 2014
1. Canada and Canadian Dollar losing status as "safe haven". Depreciating Canadian Dollar (vs USD) will cause international investors to invest their money elsewhere (eg U.S.). Eventually, declining Canadian Dollar may cause decreased interest in Canadian Bonds, causing Yield to rise. Fixed mortgage rates could be on the rise again later this year.

2. Foreign investors of Canadian RE already lost money (in USD or CNY terms) vs 1 year ago. With limited upside growth of RE appreciation, some foreign investors may decide to cash out of CAD RE and seek better returns elsewhere.

3. OSFI B-21 mortgage insurer rules are due to be implemented in 2014. Mortgage qualification could be getting tighter.

4. Finance Minister Flaherty and Bank of Canada Governor Poloz both publicly stated they want a "soft landing" of Canadian RE. They see a gradual decline of RE as "healthy for economy". However, Canadian RE only showed mild sign of slowing (even picking up steam in some markets such as Vancouver) so far. It is likely that Flaherty/OSFI will introduce tighter mortgage rules in Spring 2014. If they do decide to tighten mortgage rules, the following changes are possible:
A. Eliminate 30-year uninsured mortgages (via OSFI) from banks
B. Requiring more paperwork and proof of income for mortgage applications
C. Reduce CMHC maximum-insurable home price from $1 Million down to a lower level, eg $800k. (Or set regional caps, eg $900k for Greater Vancouver & Toronto, $800k for rest of Canada)
D. Further tighten HELOC application requirement and reduce loan amount.
E. Increase minimum down payment from 5% to 7-10%.
F. Further increase CMHC insurance premium.

5. Employment numbers continue to deteriorate. Unemployment and Under-employment will continue to drag BC & Canada's economy growth.

6. Decline in Gold and precious metal prices will continue to negatively affect Vancouver's mining industry. Expect layoffs in this sector if Gold continues to decline.

7. Tightening immigration rules (including recent changes in Canada Experience Class) and language requirement may negatively impact # of immigrants from non-English-speaking countries such as China.

8. Several Banks (TD, CIBC, Scotia) and Bank of Canada already warned in late 2013 that the recent "warming up" of Canadian RE was due to pulled-forward demand from fear of further rise in Fixed rates. If they are correct, we may see decreased demand in Spring 2014, due to a large amount of potential 2014 buyers already bought in Fall/Winter 2013.

Some things of note:
- Greater Vancouver Sales and Benchmark price of Detached in Jan 2014 were higher than Jan 2013
- Greater Vancouver Detached HPI Benchmark price in Jan 2014 is still 4% lower than the all-time high of May 2012.
- Finance Minister Flaherty will reveal his annual Budget on Tuesday Feb 11. There is a possibility he may reveal some sort of mortgage rule change on that date. (Although in past few years, mortgage rule changes can happen as early as mid January, and as late as July)

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