COVID-19 is here, and it has quickly become the biggest disrupter in not just our health care system, but our financial markets, small businesses and everything in between. We've seen unprecedented stock market drops, small businesses close their doors until further notice and people self quarantine for the foreseeable future.
What does COVID-19 mean for the Vancouver real estate market? It was just a few weeks ago that we were in full swing. We were getting the feeling that our market was roaring back,. Multiple offers, subject free offers, and hoards of people at open houses were the norm. Interest rates were dropping and we were all preparing for a year similar to what we saw back in 2016.
Then we got word of Corona Virus. It seemed like it was a world away. We heard stories of what it was doing in China, but many of us thought people were over reacting. We heard people in power say "just wash your hands", "it's just the flu", "only the elderly need to be worried" and on and on.
Then it started to spread. And it spread very quickly. Before we knew it, Italy was in lockdown, then Germany. Then the NBA paused it's season. Followed by the NHL. March madness was cancelled and all minor leagues shut down.
President Trump started by saying stay away from groups of 1000. This quickly turned into 500, then 100, then 50, 10 and now just your immediate family.
Social Distancing became the phrase of the month. Essentially stay home. Don't leave unless you need food or medicine. People started to listen.
So here we are. In the first full week of "social distancing". Homes are still listed for sale. Sellers still need to sell. Some buyers still need to buy. Open houses are starting to be cancelled and private showings are becoming the norm.
But what happens next?
Well the big 5 banks (Scotia,TD, BMO, CIBC and RBC) have come out and said that on a case by case basis they will work with small business owners and individuals that have been impacted. This could mean delaying mortgage payments and interest payments. It just came out today and the details are still unclear. There could be up to 6 months of deferred mortgage payments from what we are seeing now.
The biggest question for me is how long quarantine will last. Inevitably it will lead to a stock up of buyers that have hit the pause button, unless those buyers are so impacted by the financial changes that COVID has led to. I think this will really depend how long this "lockdown" continues for.
In the meantime we are doing our best to navigate this tricky time, but also in assisting our clients in what they need to have done. We are walking a fine line of helping our clients that are in need of buying or selling, and keeping everyone safe.
Video conferencing and video tours will need to suffice on some occasions, and extreme caution will be used when we need to be in homes.
In the meantime, we wish everyone the best. Stay safe out there, and if we can assist at all feel free to give us a call. We are figuring this out along with everyone else as we go and more information is provided to us.
Looking at the stats, we are definitely feeling a pinch between supply and demand. We saw a 44.9% increase in sales compared to February 2019, and a 36.9 per cent increase in homes sold in January. This sounds great, but the issue is that the supply just isn’t keeping up with the demand. The total number of homes currently listed for sale decreased by 20.7 per cent. This means multiple offers on well priced properties is back to being the norm. 5-15 offers on a single property is becoming common place. We were involved in a multiple offer scenario for a detached home in Kitsilano that received 43 offers and sold half a million dollars over asking price!
With the worldwide caution around coronavirus, The Bank of Canada cut rates for the first time in four years. Rates across the board continued to decline this week, with the 5 yr High-ratio Fixed down to 2.34%, and regular 5yr fixed 2.54%: Variable, both Conventional and Insured, still at P-1.00%, however some lenders have started to allow this to increase. These rates will probably not be seen again in our lifetime. We detail current rates and what we are seeing from the banks in another blog post, linked here.
Benchmark prices have increased by 0.3%, but what’s more important is that they have increased by 2.7% over the past 6 months. I think we will see this continue to trend upwards if we see this type of activity continue. Like I said; as mortgage rates drop by the minute, and the stock market grows more volatile, Vancouver real estate has picked up once again. There is a bit of concern for buyers surrounding strata insurance, but this is easy to navigate by looking through strata documents prior to an offer or during the subject period. As a buyers agent we will review documents on your behalf to make sure the deductible hasn’t increased beyond belief.
If you would like to know how this may impact you, please reach out any time. I’m always here to help you make the best decision for your real estate investments.
Rates dropped this week … coronavirus effects caused the Fed to drop their rate 0.50% on Tuesday and the Bank of Canada followed on Wednesday: the Fed move was definitely a shock, as they were not scheduled to announce until March 18. The Fed hasn’t made an unscheduled announcement since 2008, and even then it was co-ordinated with Central Banks around the world.
Once the Fed dropped, it became inevitable that the Bank of Canada too, and it just so happened that we were scheduled for an announcement on Wednesday. Note that this may not be the last time the BoC drops its rate, as they have been one of the few holdouts among Central Banks, and many observers were already recommending a 25bps drop prior to the Fed announcement.
As is the norm, the Big Banks have cut Prime Rate to 3.45%: note that they aren’t obligated to follow the BoC rate, and in view of the current circumstances, there was some discussion that they might not. We are watching the Benchmark and Stress Test rates closely.
Of course these cuts are very inflationary, particularly for real estate as we've continued to see a supply issue across Metro Vancouver.
All this means that mortgage rates are dropping by the minute: at the time of writing, 5 yr High-ratio Fixed is down to 2.49%, and regular 5yr fixed 2.59%: with the Prime Rate cut, Variable, both Conventional and Insured, at P-1.00% works out to 2.45%.
Most lenders have moved to a structure where they have a “base” rate for conventional LTVs up to 65% (or so), with premiums based on LTV above (or some variation thereof) … and a separate rate for high ratio. An example with a conventional 3.69% base rate:
- LTV <65% = 3.64%
- 65.01% - 70.00% = 3.69%
- 70.01% - 75.00% = 3.74%
- 75.01% - 80.00% = 3.79%
- BUT >80% = 3.59%
- What’s more is that these are limited to 25 yr amort, regardless of LTV … 30yr amort is still available below 80% LTV, but the rate is 3.79%+
The premiums vary from Lender to Lender.
If you have any questions, we work with the leading industry professionals to set you up with fantastic brokers that offer competitve rates. Please give us a call anytime to discuss how these changes will affect you!