Activity remains busy despite high rates
Active listings in the Greater Vancouver Area (GVA) housing market continued to increase in April – but residential sales also climbed, jumping on both an annual and month-over-month basis.
While they remain below the 10-year seasonal average, sales were up 3.3% compared with the same time last year, according to Greater Vancouver REALTORS, and posted a slight improvement over the prior month’s figures.
That’s contributing to healthy activity in the city’s mortgage market, with Jessica Kuan (pictured top), senior partner and residential mortgage broker with Signature Mortgages (a division of Clear Trust Mortgages) telling Canadian Mortgage Professional clients had been active both on the purchase and refinance sides in recent months.
“We’ve seen a lot of clients saying ‘Hey, we want to jump in before rates really come down – because we know it’s going to be a lot more competitive,’” she said. “And then we’re also seeing a lot of our past clients come back to us with questions about renewals, and doing a lot of switch transfers… It’s been a really busy year.”
Alongside Toronto, Vancouver’s real estate market is perhaps best known for the eyewatering highs of its home prices – but Kuan said there are still plenty of prospects for buyers in the current market, even for first-time buyers.
“I think there are definitely still lots of opportunities, especially when we’re looking at downtown, entry-level one-bedrooms that are available,” she said. “There’s definitely a lot of entry-level condos still available to a lot of buyers that we work with.”
Many of those newcomers to the market, she said, are willing to compromise on certain points – for instance, sharing a washer or dryer in a condo building – to get on to the property ladder, with the ability to work remotely and have easy access to the SkyTrain also making downtown living more appealing.
What types of mortgage terms are borrowers favouring?
Unsurprisingly, clients are considering their options carefully when it comes to term lengths and mortgage types. Recent research from the Canada Mortgage and Housing Corporation (CMHC), the national housing agency, showed that borrowers continue to gravitate towards shorter-term, fixed-rate options. That trend is also apparent in the Vancouver market, according to Kuan.
One- to two-year fixed-rate mortgages remain much-sought options for clients because they offer the ability to lock in fixed borrowing costs while also keeping an eye on the possibility of interest rate cuts down the line, although those aren’t always feasible.
“Even though I think the preference is a shorter term, the reality is that most of our clients now are going towards the three-year fixed rate,” Kuan said. “Some are even considering a four-year fixed or five-year fixed, and it’s just because of the affordability.”
That’s because those options usually offer lower rates and monthly payments than the shorter-term fixed mortgage types.
How are borrowers approaching their coming mortgage renewals?
Much has been made, meanwhile, of the wave of mortgage renewals coming down the tracks in 2025 and 2026. While the Office of the Superintendent of Financial Institutions (OSFI), Canada’s financial services watchdog, recently sounded the alarm on the risk that higher monthly payments could pose to the financial system, Kuan said her clients appear well poised to manage a likely increase in costs.
Victor Tran of RATESDOTCA cautions that while a potential interest rate cut by the Bank of Canada this summer would provide some relief, its impact might be minimal due to high housing prices.https://t.co/5AeLuM9Llw#mortgageindustry #mortgagetrends #economicoutlook
— Canadian Mortgage Professional Magazine (@CMPmagazine) May 24, 2024
“We’ve had so many clients reach out much sooner than later just to get an idea of what their monthly payments will look like ahead of time so they can actually start budgeting for that,” she said. “And we’ve even had clients who look into the option of extending the amortization a little bit just to have a lower monthly payment.
“But I will say that even though we’ve seen clients [say] ‘I’m curious if I was to extend amortization, what my monthly payments will be,’ most of our clients will try to do what they can to keep the amortization.”
While payment increases are in most cases unavoidable, there are other factors working in many borrowers’ favour when it comes to renewal, Kuan added.
“The last couple of years since they got the mortgage, most clients have gotten pay increases or an additional member – a spouse or partner – who’s also contributing now to the mortgage,” she said.
“So even though yes, we’re going from 1-2% interest rates to now, let’s say, a 5% rate, clients are reaching out sooner to the discuss the renewal and most, I would say, are pretty pleasantly surprised that the payments aren’t too much higher than they had.”
