Many new mortgage and lending rules were introduced during 2016 with more proposed ones to come, making access to funds more difficult for all borrowers. As a result, many homebuyers, especially those entering the market for the first time, have been pushed out of the market entirely. But, I wonder, who is suffering most if the majority of these same people weren't over-leveraged to begin with? The truth is simple: homebuyers are not properly protected, but they are paying the price.
Around this time last year, I wrote a blog titled, "Are Our Emotions Running The Real Estate Market?" In it, I talked about how many first-time homebuyers had become absolutely frantic about the housing market. Fuelled by bidding wars and a grinding, never-ending discussion about the dizzying prices of Vancouver real estate, a lot of people were resorting to some pretty drastic measures just to own a home. As a result, it really made me take stock of what we're doing. After all, we've reduced risk of default for lenders, we've made it easy for sellers (most offers I see nowadays are subject-free); what is it exactly that we're doing to protect the buyer?
The problem with all these new rules is that they don't necessarily take the bigger picture into account. What I mean is that if you're going to make it more difficult for people to get a mortgage, shouldn't you actually give them time to get a mortgage in the first place?
This demand has caused a sharp decline in supply as well as some rather ridiculous behaviour.
Homebuyers wouldn't make a subject-free offer unless they felt they had no other choice. Ditto for those who feel compelled to bid an excessive amount on a property. Both are detrimental to the buyer, and increase the risk of losing a deposit, purchasing a property with problems in its structural or electrical integrity, or worse still, being sued if the buyer needs to back out of the deal. Last year, the CBC published the article "Crazy Real Estate Bidding Wars Infect The Suburbs." It posited that soaring prices and bidding wars within Vancouver were compelling buyers to look outside the city. The Fraser Valley Real Estate Board, for instance, reported an increase of 38.2 per cent in the price of a detached home from 2015 to 2016. But that's hardly all.
In addition to soaring prices outside metropolitan Vancouver, this demand has caused a sharp decline in supply as well as some rather ridiculous behaviour. What of subjects, you ask? The article stated, "And those conditions on offers that years ago you wouldn't even consider buying a house without? Well, they have become a thing of the past." A realtor interviewed for the article was quoted as saying, "Some of the things that these days would seem like a luxury, like a home inspection, oftentimes there's no time for that and in fact the reality of the situation is that houses are selling often without those conditions."
Personally, reading stuff like this makes me crazy. And it makes me angry because it means I have little control over protecting my clients. I would love to see a mandatory seven-day subject removal as the new norm. This is the one practice we could adopt that would really protect buyers. Not only would it curb the numbers of people making offers on a whim — which would decrease bidding wars and turn down the heat on suburban housing markets that are a direct response to Vancouver's sky-high real estate — it would actually give people an adequate amount of time to obtain a mortgage.
Subject-free offers create unnecessary stress for everyone. A seven-day subject removal would give you time to avoid potentially disastrous consequences. For example, perhaps your lender pre-approves you, but you're under the gun to make a subject-free offer on the spot. If your lender doesn't like the property for whatever reason, the mortgage can easily fall flat, leaving you scrambling at the very last minute.
A proper advisory group, increased transparency among multiple offer situations and a mandatory seven-day subject removal would be a big step toward protecting buyers. Until then, buyers will remain only partially protected by the same system that allows us to sell a home without subjects; an inadequate practice at best.
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