Avoid bidding wars during a hot housing market
The Straight has previously reported about homes selling for more than $500,000 on top of their listed prices. If some thought nothing would ever beat that, here’s a surprise. A home in East Vancouver recently sold for $872,134 over its original asking price.
The top-up alone is enough to buy a townhouse, or perhaps two condos.
The two-storey home at 3285 Victoria Drive sold on February 24 after eight days on the market. Oakwyn Realty Ltd. listed the five-bedroom, four-bath residence on February 16. The listing price was $1,728,000.
A buyer picked up the property for $2,600,134. The transaction was tracked by Zealty.ca, an information site owned and operated by Holywell Properties.
Holywell’s managing broker, Adam Major, informed the Straight about the sale. According to Major, the deal for the home located across from Trout Lake is a “candidate for craziest individual deal”.
B.C. Assessment placed the 2021 value of the property at $1,741,000 as of July 1, 2020.
There may be buyers out there who have a fear of missing out as the market continues to sizzle. They may be tempted to enter into bidding wars.
Major’s advice: don’t. “For buyers, I would recommend caution,” he said.
The market may have become so hot that the government could decide to do something about it. “There is a risk that the federal government steps in to cool the housing market,” Major said.
The governor of the Bank of Canada, Tiff Macklem, has observed “excess exuberance” in the country’s housing market.
“What we get worried about is when we start to see extrapolated expectations, when we start to see people expecting the kind of unsustainable price increases we’ve seen recently go on indefinitely,” Macklem said on February 24 during a virtual address to Edmonton and Calgary chambers of commerce.
The central bank dropped its interest-setting rate to 0.25 percent on March 27, 2020, to ease the impact of the COVID-19 pandemic on the economy.
The bank has maintained that lowest rate and indicated that it will stay at that level until 2023.
“We are starting to see some early signs of excess exuberance, but we’re a long way from where we were in 2016-2017, when things were really hot,” Macklem noted.
Holywell’s Major noted that the central bank may be “only six months late” in issuing a “warning about the housing market overheating”.
“But better late than never,” he said. “At some point, the rules could change, and it could happen overnight.”
Major cited the case of New Zealand. In April 2020, the Reserve Bank of New Zealand lifted lending restrictions to prop up the economy amid the COVID-19 pandemic. The measure eased credit flow and led to strong sales in the country’s housing market, with price increases setting new records.
Moving to cool the market, New Zealand’s central bank decided to reimpose socalled loan-to-value ratio (LVR) restrictions.
Starting in March 2021, banks can allocate only 20 percent of their residential mortgage lending to owner-occupiers with a down payment of 20 percent.
Moreover, banks can lend no more than five percent to investors with a down payment of less than 30 percent. Starting on May 1, the requirement for investors will increase to 40 percent.
Locally, Major said that the last week in February 2021 was the “busiest for weekly sales since 2019” in markets served by the Greater Vancouver, Fraser Valley, and Chilliwack real estate boards.
According to him, 1,998 sales were reported in the combined areas of the three boards.
“In the last week of February 2020, there were 1,109 sales, so we are up 82 percent over the same week last year,” he said.
Major also noted that the Canada Mortgage and Housing Corporation has been “awfully quiet”. He recalled that CMHC predicted at the beginning of the pandemic in 2020 that housing prices would fall 18 percent.
“The exact opposite happened,” Major said.
He speculated that an increase to downpayment requirements by CMHC could be coming “any day”.
So buyers should be cautious.
“Are you sure you want to win a bidding war on a teardown in the sticks to wake up the next morning to discover the feds changed the rules so nobody else makes the same mistake?” Major asked.
At some point, the rules could change, and it could happen overnight.
– Adam Major