Runaway Metro Vancouver condominium sales were projected to take a hit this month from more expensive mortgages. But it appears that many buyers missed that memo.
The Bank of Canada (BoC) pushed its interest rate to 1.25% January 17, the highest level in nine years, and, since January 1, all buyers are now subject to a federal mortgage stress test that forces them to qualify at lending rates 2% higher than what is available. The BoC’s move marks the third 0.25 percentage point increase since July 2017 and the first time the rate has risen above 1% since 2009.
Banks were quick to react. Scotiabank (TSX:BNS) raised its prime lending rate, offered to its best mortgage clients, to 3.25% from 3.2% within hours of the announcement.
Greater Vancouver condo sales reached 18,193 units in 2017; in December they were up 12% and benchmark prices were up 26% compared with a year earlier. So far, the pace has not slowed.
“We sold three condos in the last seven days, and we got multiple offers on all of them” said Adil Dinani, an agent with Royal LePage West in Burnaby.
One Richmond condo he sold was listed at $699,000 but sold for $53,000 above that price after multiple bids were received.
Dinani said Metro Vancouver is now seeing a “slingshot” effect as more buyers flood into the market fearing even higher interest rates on the horizon.
Dinani added that the strong 2017 sales momentum has carried into this year.
Lindsay Meredith, a professor emeritus at the Simon Fraser University Beedie School of Business, said the hike in lending rates “will not make a hell of a lot of difference” in Vancouver or affluent Metro suburbs. But, he said, it will hammer buyers in lower-priced areas.
“Those buyers are more likely to be entry-level, and they are already in hock up to their eyebrows. They are the ones who are packing record-high debt and would already have problems qualifying for mortgages.”
Meredith expects to see at least two more BoC interest rate hikes this year, which he said will drive many marginal homebuyers out of the market altogether.