New CMHC Mortgage Insurance Rules Take Effect July 1st, 2020

In Canada, mortgage insurance is required for all home purchases involving down payments of less than 20 per cent. To curb demand from risky borrowers and to stabilize prices, the Canada Mortgage and Housing Corporation (CMHC) is introducing new rules that will make it tougher to qualify for coverage in their mortgage insurance plan. The rules, which take effect on July 1, 2020, are as follows:

• Down payments can no longer be covered by borrowed funds (e.g. line of credit or other loans). However, non-repayable financial gifts can be used.
• The minimum credit score requirement will rise to 680 (up from 600).
• Gross debt ratio – the share of monthly household income toward mortgage/other housing costs – must not surpass 35 per cent (down from 39 per cent).
• Total debt service ratio – the share of monthly household income toward all debt – must not surpass 42 per cent (down from 44 per cent).

According to James Laird, Co-Founder of RateHub.ca and President of CanWise Financial, a family that earns $100,000 annually with a 10 per cent down payment would currently qualify for a $524,980 home. However, under the new rules, Laird says that the same family would only qualify for a $462,860 home, a 12 per cent drop in purchasing power.

Using Laird’s example, we can extrapolate to the Fraser Valley. Last month (May 2020) the HPI Benchmark Prices in the Fraser Valley were:

• Single family home: $990,400
• Townhome: $555,000
• Apartment: $433,700  

Under the existing rules, the above-noted hypothetical family could buy property that is relatively close to a typical townhome in the Fraser Valley. However, under the new rules, that family would be precluded from buying anything close to a typical Fraser Valley townhome. Instead, they would qualify for a less desirable townhome or a typical apartment. 

It is important to note that private mortgage insurers will not be required to adopt the new rules. This means that buyers who have less than 20 per cent for a down payment could skirt the new rules by going to alternative insurers. Private insurers are also likely to have higher premiums, which creates an additional financial risk for home buyers who do not qualify or choose not to get CMHC mortgage insurance.

If your clients have questions about the new mortgage rules and how they could affect their unique financial situation, please encourage them to talk to a mortgage professional.

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Are Real Estate Prices Dropping in Surrey?

Surrey is the second most populous city within the Metro Vancouver area, home to over 517,000 residents. Despite its proximity to Vancouver’s smoking hot, and wildly overpriced real estate market, Surrey’s local market is characterized by starkly different characteristics that make it a far more accessible city for homebuyers. Below, we take a look into the dominant real estate trends within the Surrey housing market, the impact of COVID-19, and the projection of local housing prices in the months ahead.

Market Trends within Surrey, BC

Surrey, part of the Fraser Valley Real Estate Board, ended last year with a buyers’ market, with demand heavily outweighed by the high market inventory. Part of this depressed demand was the impact of the mortgage stress test which came into effect in January of 2018, and made it more challenging for first time homebuyers to enter the market.

According to the RE/MAX Fraser Valley Housing Market Outlook for 2020, the new year was to bring heightened market activity, as the city’s population continued to grow and development in Downtown Surrey was attracting buyers, companies, and educational institutions. As house prices in neighbouring cities were soaring to unreachable levels, Surrey was also attracting an increasing number of Vancouverites who were drawn to Surrey’s relative affordability.

This climbing demand was supressed by the arrival of COVID-19 earlier this year. The public health crisis has impacted the national economy and housing market in profound ways, and both REALTORS® and participants within the real estate market have had to pivot and adapt to new methods of selling and buying homes, safely. This has translated to a heavy reliance upon technology, such as virtual tours and e-signing methods; no more open houses and tours, and no more handshakes to seal each deal. Despite these allowances, many sellers and buyers have unsurprisingly sidelined real estate plans, and as a result, the Fraser Valley Real Estate Board (FVREB) reported one of the slowest Aprils in history. However in May, Fraser Valley saw listings and property sales begin to bounce back, thanks to REALTORS® helping their clients adjust to the new safety measures.

In May, the FVREB processed a total of 805 sales on its Multiple Listing Service® (MLS®), which was an increase of 17 per cent compared to sales in April. President of the Board, Chris Shields commented in FVREB’s most recent market statistics report, “this is an encouraging sign. Real estate is an essential service and it’s one of the most important economic drivers in BC’s economy. Realtors and consumers deserve to be congratulated. It’s not easy to adapt quickly to physical distancing, virtual tools and strict personal safety protocols and yet we’re seeing more and more transactions happening daily as we all get more comfortable and confident with the new normal.”

The underlying optimism in Shield’s statement is echoed by many involved in Surrey and Fraser Valley real estate: given that the demand and supply have fallen at the same rate, the market has been spared any significant price nosedives which can occur when conditions are notably imbalanced. As lockdown measures are gradually released, there remains hope that demand and supply will also slowly climb in tandem as Surrey’s market begins to return to pre-crisis levels.

Price Activity within Surrey’s Real Estate Market

Price activity within the Fraser Valley real estate market has taken a different turn, with upward growth in average prices of single-family detached home (+2.7%), townhomes (+1.8%) and apartments (+1.0%) compared to price levels for May 2019. Within Surrey, the benchmark price of a home (residential combined) sat at $860,000 by the end of May 2020, up by 0.3% from the month before, and up 3.3% from the same month last year.

With prices remaining stable, in contrast with many fluctuating neighbouring cities, the Surrey market is only further proving its reputation as a ‘safe bet’ within the region. Should this serve to make Surrey an even more attractive destination for homebuyers and investors in the wake of the crisis, the market balance may flip, and Surrey may start to resemble a sellers’ market. If this happens, Surrey’s home prices won’t stay stable and ‘relatively affordable’ for much longer.

So, to respond to the question that we set out to explore; are real estate prices dropping in Surrey’s market? Not at present. And with lockdown measures lifting and activity returning to these cooled markets, it is unlikely that this local market will experience any faltering prices in the months to come.

While there remains a great deal of uncertainty regarding the Canadian real estate landscape as the country slowly emerges from this public health crisis, REALTORS® from coast to coast are working hard to ensure the safety of buyers, sellers, and themselves as they navigate this new normal. Looking to dive into the Surrey real estate market in the next few months? Ensure that you seek the guidance of a trusted, local REALTOR® to guide you through these changes and help you achieve your real estate goals as safely and smoothly as possible.

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