A for-sale sign stands outside a house in Vancouver on Sept. 5, 2018.DARRYL DYCK/The Globe and Mail
Although declining property values are big news, the price drops across Metro Vancouver won’t necessarily translate into an affordable housing market for first-time home buyers, real estate professionals say.
Based on recent industry reports, those first-time buyers relied increasingly on support from Mom and Dad throughout 2019, and with restrictive mortgage rules, the situation will remain a challenge, says the president of the BC Notaries Association. As well, new Statistics Canada information shows that average renters have an even bigger leap to make in order to access the housing market.
The BC Notaries Association’s year-end real estate survey showed 90 per cent of first-time buyers relied on their parents last year for their down payments, compared with 70 per cent in 2015. And despite the softened market, most of the 193 notaries surveyed said they saw either no change or a drop in the number of first-time buyers. The association says notaries handle more than half of all residential real estate transactions in B.C.
The majority of notaries said that their first-time home buyer clients receive 25 per cent or less of their down payment from their parents. The help, whether in the form of gifts or loans, usually comes from the parents borrowing on the equity in their homes, or downsizing and giving their children part of the profit from the sale of the family home.
BC Notaries Association president Daniel Boisvert says that first-time buyers face a couple of obstacles, including mortgage rules and a lack of affordable starter homes. The federal “stress test” rule requires borrowers to prove that they can handle an interest rate far higher than their contract mortgage rate. Because many buyers can’t pass the test to borrow for their desired property, they are choosing to sit outside the market, Mr. Boisvert says.
“The reason why you don’t see more first-time buyers is the mortgage rules – it’s the single biggest debilitating factor,” he says. “Now those buyers are out of the market, because they are the ones that are most strapped, so as soon as you bring in a rule like that, that limits how much you can borrow. It’s based on the money you make, and that affects the most vulnerable, not people with $1-million in equity in property.
“To government’s point, that is a group that generally will leverage themselves too much and that leveraging needs to be more tightly regulated. ... I think it’s done its job. It certainly has slowed the market down and prevented people from becoming as indebted as they were.”
Newly released assessment values for detached houses and strata units dropped as much as 15 per cent in Metro Vancouver, compared with the previous year, according to BC Assessment. A detached house in the city of Vancouver dropped 11 per cent, with a July, 2019, assessed value of $1.568-million. But first-time buyers are more likely to buy a condo, which has typically fallen 7 per cent in the Vancouver market, to an assessed value of $686,000. Across the region, strata units have dropped in assessment values between 4 per cent and 10 per cent.
In order to better understand the first-time buyer, the Canadian Housing Statistics Program (CHSP) recently released a report that showed a snapshot of first-time home buyer incomes, existing owner incomes and renter incomes. The newly formed CHSP, a program by Statistics Canada, is trying to find answers to help establish housing policies across the country, including questions on mobility patterns, the number of empty homes, homes purchased with foreign money and the rate of added supply in growing markets. So far, the program has focused on B.C., Ontario and Nova Scotia, but its mandate is to eventually study every province. The analysts used data obtained from the 10-year-old Home Buyers’ Amount (HBA), a tax credit given to a subset of first-time home buyers in the year that they purchase a home. In order to qualify for the HBA credit, the claimant and spouse could not own a home for the previous four years and must intend on living in their home within one year of purchase.
“The income of HBA claimants provides an indication of the income of new entrants to the housing market,” the report says.
For 2017, those individual entrants in B.C. showed a median before-tax income of $61,200. People who already owned a single property had a median before-tax income of $47,000 – about 30 per cent lower. When controlling for pensioners, the new buyers still outearned existing owners. And people who did not own property, which would be renters, earned $24,400 in median before-tax income.
The CHSP report gives other details on who owns and who doesn’t. Most renters in B.C., Ontario and Nova Scotia work in the retail sector, and earn a median hourly rate of $16. Most property owners in B.C. and Nova Scotia work at public administration jobs, while in Ontario they work in manufacturing. The median age of owners is 55 and the median age of renters is 37.
In B.C., 55.5 per cent of those who claimed the HBA credit had purchased their first property in Vancouver. Long-time realtor Bryan Yan works in Vancouver and most of his first-time buyers purchase homes between $500,000 and $1-million.
“Most of my buyers are professionals; they work in a bank or a hotel or sales, and some are doctors. Most, if not all of them, require financial assistance for the down payment from their parents,” he says. “Perhaps it’s because first-time buyers have no credit history and banks are pretty strict these days.”
Not surprisingly, the value of properties they purchase is significantly lower than those owned by existing property owners. The median assessed value of properties purchased by the HBA claimants was $446,000 in 2017, compared with $645,000 for properties of existing owners. Because the data are based only on information supplied by tax filers, and do not include, for example, all household income, the numbers only give a snapshot impression. Also, not everyone who qualified for an HBA credit may have claimed it. But Statistics Canada analysts say the data still fill in previously unknown relevant information about the first-time buyer. They also highlight a significant income gap between renters and those who do manage to buy into the market.
The median age of HBA claimants in the three provinces was between 31 and 33, and a little more than half of claimants were married. More than half who bought a condo were the sole owners.
Statistics Canada chief of investment, science and technology division Jean-Philippe Deschamps-Laporte says until the new analysis, it had been difficult to describe the major income differences between owners and non-owners, and the consequences of that gap. He used assessment values as a proxy for market prices.
“For the first time, these data allow us to understand how big of an income gap there is between those who just entered the housing market and those who have not joined it,” Mr. Deschamps-Laporte says. “The data released by the CHSP shows that those who joined the housing market in 2017 were quite different from those who did not own any residential property, as they earned median incomes that were 2.5 higher in British Columbia. This means that the ‘average’ person who did not own a property in 2017 would have to dedicate 3.7 years of their full income to accumulate the down payment necessary to purchase the median property bought by first-time home buyers who claimed the HBA in B.C., compared to 1.5 years for those who actually joined the housing market in that province.”
Although the majority of HBA claimants purchased strata properties, one-quarter in B.C. purchased detached houses. Mr. Deschamps-Laporte found it noteworthy that first-time buyers would tackle the formidable costs of buying a detached house in Metro Vancouver. The region has the highest property value-to-income ratios in the country, based on total family income. In the Vancouver census metropolitan area, median property values in 2018 were nine times greater than the median before-tax incomes of homeowners, and detached house values in the same region 11.5 times higher than income, according to the report. By comparison, Ontario’s median value-to-income ratio was 3.9.
To purchase a typical $1-million home in Metro Vancouver, the buyer would have to pay a down payment of 20 per cent, or $200,000, to obtain an uninsured mortgage. “That’s a significant amount of money people have to save up in order to buy a property,” Mr. Deschamps-Laporte says. “When you have around $61,000 in income, you are not a millionaire. That’s a significant challenge.”
According to Statistics Canada, half of Vancouver renter households earned $30,000 to $50,000 in 2015. For homeowner households, 40 per cent earned less than $80,000 in the same year, suggesting that existing homeowners may have ample equity in their homes but are not always a high-income group.
Andy Yan, director of Simon Fraser University’s City Program, says that the income disparity between renters and owners shows that several rungs have been removed from the conventional property ladder for many in Vancouver.
However, he is an ardent supporter of the federal government’s B-20 residential mortgage guidelines, which are not just about the “stress test” for first-time buyers.
The test is only one part of the Office of the Superintendent of Financial Institutions’ (OSFI) new regulations around borrowing. It’s the one everybody talks about, he says, but there is also a section on anti-money laundering and anti-terrorist financing, in which lenders are required to report suspicious activity, and all forms of fraud and misrepresentation. He says those rules have also had a major impact on Vancouver’s softened housing market, and that is often overlooked.
“I might be one of the few in Vancouver who actively likes the new mortgage rules,” Prof. Yan says. “Everybody is talking about the effect of those new provincial taxes, including the speculation and vacancy tax, the foreign buyers’ tax and the school tax. Yes, they have had an effect, but it’s the combination of those taxes with the new mortgage reforms – and not just around stress testing. It’s the other elements of B-20 that have really helped to reshape the Vancouver housing market.
“If you are a foreigner, you can still borrow money, but now you have to show your identity. There is some serious anti-money laundering protocol. Are you who you say you are? And how are you going to pay for the mortgage? Who exactly is your guarantor? These are important reforms beyond the stress test. That was only one principle of five principles; the other ones are pretty important, and centred around transparency, accountability and the stability of our national housing market. People might not like it, but we’re all going to live that financial crisis, should it ever come."
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