In a breakdown piece for Seeking Alpha
, capital markets analyst Mercenary Investor (pen name) said that recent changes to down payment rules (which have made it harder for prospective buyers to get new homes) are putting more pressure on banks to take on riskier mortgages, which might cause a cascade effect of increased interest rates in the long run.
“I think that there are definitely opportunities in [the Vancouver] market for pessimistic investing,” Mercenary Investor wrote. “For those purchasing homes it is recommended that they purchase mortgage insurance in case anything happens to them and their ability to make debt service payments as a first line of defense. Most of these home owners chose to purchase insurance from their mortgage provider, i.e. RBC.”
“Should you not be able to make a down payment of 20%, something that is becoming harder and harder for new home owners in Vancouver, you may be required to seek insurance from a third party (Canadian Mortgage and Housing Corp.),” the analyst added. “[If] interest rates increase - which they only can from their current position - these will be the first points of failure as the riskier mortgages begin to go into arrears.”
The observer argued that the Vancouver market will not be cooling down any time soon, and it’s not just because of the revised mortgage regulations.
“Further stimulated by the currently depressed Canadian dollar, wealthy Chinese are looking for a way to get their money out from under the gaze of their government,” Mercenary Investor stated. “[Due] to Chinese demand, there is no foreseeable correction. That is unless the government intervenes.”
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The intensifying affordability crisis in Canada’s most in-demand housing market is making the outlook for the sector increasingly bearish, and property investors should adjust their expectations accordingly, according to an observer.