A lifeline has been thrown- mortgages to go down
For the longest time, mortgage payments were not really an issue in Canada. Then came Covid, and everything went pear-shaped after that. The post Covid hyperinflation, and the resultant increase in borrowing rates in a bid to counter that meant that suddenly many prospective home buyers found themselves incapable of meeting the financial requirements for the higher mortgages.
However, plummeting demand and the consequent danger of decreased supply has seemingly jolted the federal government into action. While borrowing rates have been pared back to a degree, given that they are still far higher than pre-Covid levels, the government needed to come up with more creative measures to stimulate demand. To that end, they have come up with a simple and elegant solution. By increasing the amortization period from 25 years to 30, they have effectively reduced monthly mortgage payments just enough to bring them to manageable proportions.
Should I now take the plunge?
Absolutely! If you were considering purchasing a house, townhouse, or presale condo in under development spaces around King George Hub in Surrey, Surrey Central, East Vancouver, Burnaby etc., now is the time to do it. Given that demand is bound to shoot up after this announcement, the earlier you get into the game, the cheaper it will come out to be in the long run.
Would it not be cheaper to wait and get in when the demand drops?
According to BIV, BC will need anywhere between half to three quarters of a million new housing units by 2030 to restore 2003-2004 levels of affordability (ah the good old days! Remember?). As a developer, we can tell you right off the bat that, it is going to be a very difficult target to meet, try as hard as we all might. Supply chain issues, labour shortage, and high operational costs are issues that remain firmly entrenched in the system, and there is not much anyone can do about it.
There is war raging in Europe, and in the Middle East. Significant material and resources will be diverted to those regions in the near future for reconstruction efforts. Hence the Canadian construction industry will have to compete with more players globally while trying to source materials. Moreover, a tightening of immigration rules has seen the supply of new construction workers decline. This is a classic Catch 22 situation that the Canadian economy is forced to deal with. It needs the steady supply of labour that previous immigration levels ensured. However, without enough units to house new immigrants, Canada can ill afford to maintain a similar intake. While there has been talk about granting temporary work permits to attract labour with specific skillsets, construction being one of them, the efficacy of such an arrangement, for obvious reasons, might be rather tenuous. So, however you look at it, BC and Canada as a whole will take a very long time to build enough to see as depreciation in prices, if at all. If you are looking to wait it out, it might end up being a very long wait.
Should I at least wait for borrowing rates to cool off?
Indications of borrowing rates being scaled back are already there. We have seen the Bank of Canada incrementally slashing rates of late. However, many experts have opined that while one can hope for the rates to go down over time, they will probably never go back down to the pre-2023 levels. So, the difference between borrowing now and say a year down the line might not be significant enough to warrant the wait. Moreover, the rising cost of materials and labour might mean that even with a lower rate of mortgage, you might end up with a higher monthly payout anyways.
What also needs to be taken into account, especially in the case of first-time home buyers like young professionals, and permanent residents, is that while you wait for borrowing rates to become more “favourable”, you will still be paying; albeit someone else’s mortgage in the form of rent, which are currently also at a record high. So, why build up someone else’s wealth, when you can be building yours?
Presales are the way to go
Let us say though, that you are still feeling a tick iffy about the high borrowing rates. Luckily, there is a way “freeze” the price now and borrow a couple of years down the line, when the rates will hopefully be lower. Luxury pre-sale real estate developments in Canada accord you that flexibility, and with 30-year amortizations now a possibility, first time home buyers will hardly have more favourable conditions to take the plunge.
