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Vancouver home buyers making lower mortgage payments despite higher prices

Jessy Bains
·3-min read

Vancouver’s delayed spring housing market is spilling over into the fall, despite the economic effects of COVID-19.

But even though house prices have surged since last year, ownership is more affordable thanks to record-low interest rates on mortgages.

The Real Estate Board of Greater Vancouver (REBGV) says 3,687 homes were sold in October, led by a jump in detached home sales, and which is 29 per cent more than the same month last year.

It was 34.7 per cent higher than the 10-year average, and the second best month of October on record.

“Home has been a focus for residents during the pandemic. With more days and evenings spent at home this year, people are re-thinking their housing situation," said REBGV chair Colette Gerber, in a release.

The MLS Home Price Index composite benchmark price for all types of homes was up six per cent to $1,045,100.

Meanwhile homes listed for sale are up only 1.5 per cent and listings are sparking bidding wars.

“With demand on the rise, homes priced right for today’s market are receiving attention and, at times, garnering multiple offers," said Gerber.

Lower mortgage payments

Rob McLister, mortgage expert at RATESDOTCA and RateSpy founder crunched the numbers and found mortgage payments are lower today, even though home prices are higher.

He compared the benchmark price in October with the same month last year and found buyers would save about $129 a month on the benchmark, assuming 20 per cent down and a 30-year amortization.

October 2019:

  • Average benchmark price: $992,900

  • Mortgage with 20% down: $794,320

  • Monthly payment with 20% down: $3,170

  • Lowest nationally advertised 5-year fixed rate with 30-year amortization: 2.59%

  • Qualifying rate: 5.19%

  • Maximum mortgage with $100k income, 20% down and no other debt $481,300

October 2020:

  • Average benchmark price: $1,045,100

  • Mortgage with 20% down: $836,080

  • Monthly payment with 20% down: $3,041

  • Lowest nationally advertised 5-year fixed rate with 30-year amortization: 1.89%

  • Qualifying rate: 4.79%

  • Maximum mortgage with $100k income, 20% down and no other debt $499,700

But that doesn’t mean that Vancouver housing has suddenly become accessible. McLister used a 20 per cent down payment for the scenarios because you can’t buy a home at the current benchmark price with less.

“Whereas in 2019 you could have bought with just a 7.5 per cent down payment and default insurance, now you need 20 per cent down because properties over $1 million cannot be insured,” he told Yahoo Finance Canada.

McLister says the Department of Finance can make more homes available to borrowers with less than 20 per cent down through an increase to the default insurance price limit.

“That limit has stayed the same since 2016, yet benchmark prices are up 13.7 per cent in Vancouver and up 27.1 per cent in Toronto ($755,755 to $960,772) in that timeframe. Given that almost half of new buyers don't have 20 per cent down, that means more young Canadians will be shut out of buying in big cities... Urban sprawl will keep sprawling,” he said.

Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.

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