A mortgage ‘stress test’ introduced several years ago is likely responsible for the strength of the real-estate market, particularly in expensive locales like Victoria, says Victoria realtor Marko Juras.

 

Speaking to Citified about June’s property sales, Juras (see Marko's website) notes that real-estate transactions show a market that is agile enough to weather rising interest rates, economic fluctuations and cost pressures, despite initial doubts among analysts and economists on consumer carrying capacity.

 

“When the market saw a jolt last year as inflation soared and interest rates followed, many experts foretold of forced home sales, financial challenges for homeowners, and even homeowners turning to the rental market,” Juras said. "But we haven’t really seen that, at least not on the south Island, and for that I feel we have the mortgage stress test to thank for exposing buyer finances to today's costs, five years ago.”

 

Mandated by the federal government initially in the fall of 2016 for insured mortgages with down payments below 20%, then expanded in 2018 to all mortgage holders, the mortgage stress test qualifies purchasers at higher interest rates than what the banks are offering at the time of purchase. This creating a buffer for homeowners taking advantage of low interest rates that could reasonably be expected to be higher in time for a five-year renewal. For the most part, mortgage-holders renewing today will see their rates rise from approximately 2.5-2.8% secured in spring of 2018, to 5.25%-5.5% today, or within striking distance of their qualifying stress test.

 

“Generally speaking, if you qualified for a mortgage in 2018, you actually qualified at an interest rate that you’re seeing today, thanks to the stress test. This would appear to be the leading reason why homeowners are not feeling the degree of financial pain that it was assumed they would be when interest rates began rising,” Juras said. “However, we will start to see more of a home’s discretionary income enjoyed over the last five years for spending on new cars or vacations, convert to mortgage payments, so this will have broader economic effects over the long-term.”

 

According to the Victoria Real Estate Board (VREB), June’s property sales via the Multiple Listings Service (MLS) outpaced June of 2022 by 93 transactions, totalling 705. Although well below 2021’s 942 sales for the month, June of 2023 was in line with totals in 2018 and 2019, which reached 708 and 740 sales, respectively.

 

322 single-family homes sold in June, at an average price of $1,262,623 with a $1,175,000 median. The average dipped from May’s $1.29 million, while the median rose slightly from May's $1,172,353.

 

Condominiums were equally as stable in June, with 242 sales at an average of $668,110 and a $560,500 median. The average dipped from May’s $674,732, as the median remained virtually static at a $500 uplift.

 

Townhomes, an in-demand form of housing in the region despite its ultra-low supply, generated 90 sales in June, at an $836,207 average and an $804,198 median. In May, the median reached $785,000, or well below June’s, and the average hit $853,470.

 

On the listings front, new listings continue to pose a challenge on the re-sale market, which is under-supplied, and helping maintain high asking prices. Juras says the reason for the lower than expected availability of units, at 2,342 for the month of which 1,297 were new, is multi-fold.

 

“First of all, if you sell, where do you move? It used to be, that you could sell your home in Saanich, and scale down the cost ladder to Langford. Or you’d sell in Langford, and scale down to Sooke. Today, homes are selling for Victoria prices even in the Cowichan Valley and further up-Island, let alone in the Capital, meaning sellers are more motivated to make do with what they have where they are, rather than seek price concessions by moving to a cheaper part of town. In today's climate, selling out of a house to save money, likely means buying back in to a townhome or a larger, older condominium,” Juras said. “The high rent environment is also playing into fewer listings, by giving investors less financial motivation to sell, as higher rents continue to cover the carrying cost of properties that may be under-valued in this market compared to 2021, but facing higher interest rates. Where rents are today, the majority of investors can still make the numbers work, and will hang on to their assets until values scale higher.”

 

With higher interest rates, and the sky-high cost of Victoria real-estate unable to keep buyers at bay, Juras feels an uneventful summer can be expected.

 

“In hindsight, the stress test turned out to be a really good idea, which will keep property owners from feeling the pinch to the degree analysts thought they would. And as long as Victoria remains such a desirable place to live, new homeowners will keep buying, meaning prices have little downward pressure to recede, even as interest rates rise.” C

 

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