There are fewer first-time buyers in the real estate market this year, according to a new survey of B.C. notaries — and they say the top factor affecting the market is the mortgage stress test.
As a refresher, with the so-called "stress test," installed in January of 2018, loan officers must check if prospective borrowers can afford a higher interest rate — either the five-year benchmark rate or the borrower's approved rate, plus two points, whichever is higher.
"Everything works on an equilibrium. Prices were allowed to get to where they are today because money was cheap and credit was abundant," Squamish notary Cam Sherk told The Chief. "With the new mortgage restriction, that amounts to basically a contraction in credit. Same with the increase in rates, if people could borrow what they could in 2016 and part of 2017, before the new rules came in, I have got no doubt that the market would still be moving forward at the pace it was."
Some 59 per cent of the 173 B.C. notaries polled reported seeing fewer first-timers in 2018, with 28 per cent reporting no change and just 13 per cent seeing an increase.
Daniel Boisvert, president of B.C. Notaries Association, which conducted the poll of its members, said, “While it’s great to see that many first-time buyers are finding ways to get their first home, increased restrictions and the potential for higher interest rates is making some cautious or decide to wait on the sidelines to amass more of a down payment.”
Just over three-quarters of the respondents (76 per cent) said that high home prices were an issue in their community. A total of 108 of the 173 polled notaries were based in Greater Vancouver, while the rest were from various regional centres around B.C.
Of those 173 notaries, 121 said that the mortgage stress test was one of the three biggest issues affecting the real estate market in 2018 – the highest proportion of the seven given factors. The next biggest issue was rising interest rates, with 97 notaries citing it as a top-three factor.
Generally, the clientele that Sherk sees in his office is the same as it was in previous years, he said.
"It is a lot of younger people in Squamish trying to get established — because we are still cheaper than the city."
And ever drive around Squamish and wonder how some of these young couples can afford to even get in the Squamish market?
Family help is key, said Sherk.
Of first-timers who did enter the housing market in B.C., 83 per cent of notaries said the buyers were getting some help from family with their down payment. This is up from 57 per cent in 2015.
"Even in Squamish, the prices are astronomically high, when you compare it with real incomes," he said. "Because 50 per cent of the town commutes, you have to add that into the budget as well."
Overall in B.C., the proportion of down payment help has also increased over the past three years. This year, 42 per cent of notaries said they are seeing financial help of typically 25 to 50 per cent of the down payment (up from 33 per cent of respondents in 2015) and 16 per cent of respondents seeing more than half the down payment coming from family help (up from 15 per cent in 2015).
"What we are seeing is a variety of different family gifting, and borrowing," Sherk said, adding he sees this in all segments of the market, from those buying a manufactured home to those buying higher-end homes.
It is a bigger phenomenon than just Squamish or even B.C., Sherk said.
"We are undergoing the biggest transference of wealth in history," noting that those in the Boomer generation are passing down their wealth to their children. "The Boomers were hard workers, but they were also the best accumulators."
A Boomer couple in Vancouver, for example, may have bought their house for a couple hundred thousand dollars in the late 1980s and now it is worth $2 million. That couple can take out a line of credit and give that money to the kids for a down payment.
"You could write dozens of stories about the different ways people are doing this and where the money is coming from. It is really fascinating," he said.
Some buyers are given the money as a loan that they will eventually pay back, and others are getting it as more of an inheritance.
Sherk said notaries try to make sure the expectation is clear and documented properly so that down the line there isn't a problem.
If the parents pass away, for example, and whether the money was a loan or a gift wasn't clear and documented, that may cause conflict between siblings in the family.
"You want to give your kids money, that is fantastic because the way things are everybody needs help unless you have got a spectacular job, but let's now talk about your estate planning goals. Whatdo you really intend to do with this money?"
Sherk's advice for young people getting into the Squamish market is not to overextend.
"Make sure you can still live your life and be comfortable," he said.