Amongst all of the chatter circulating about the B.C. government's HOME Partnership Program, we thought we would chime in with a few thoughts of our own. While it’s easy for us to simply agree with the government's move to implement this program because we are in the real estate industry, we believe that before we can agree, we must first educate ourselves and our clients on the big picture: an all-encompassing view of both the pros and the cons of this decision.
While I do very much support the B.C. Real Estate Association as well as this government initiative, I have decided to take a different approach to discussing this topic:
What are the negatives?
Long-term second mortgage = increased potential for buyers to over-extend themselves financially/accrue more debt.
The influx of first-time home buyers brought on by the program may increase demand and drive costs of lower-priced residences upward.
The program does not provide solutions for the people who are the most in crisis when it comes to housing in B.C.
So, let’s stop and talk about these three issues for a second.
Addressing Negative #1:
The Bank of Canada recently stated that the greatest issue facing our economy is the growing level of household debt. The national debt to disposable income ratio is already approaching 170% - meaning that for every $1 of disposable income, Canadians carry nearly $1.70 in household debt. If first time home buyers are already having difficulties saving, how are they possibly going to start paying back their 50% loan in 5 years?
Essentially, while the HOME Program makes entry into the housing market seem much more achievable than ever before, after 5 years, the loan will no longer be interest- and payment-free. What does this mean? Well, after five years, if program participants aren't bringing in significantly more income OR if mortgage rates increase as they are expected to, buyers could be facing some serious financial troubles.
Addressing Negative #2:
With inventory currently low, prices are stable and competitive; and in some marketplaces, they are on the rise. While we don’t expect this to occur in the Kamloops area, there is some concern that extra cash being made available for buyers will impact home prices in a couple of ways.
Firstly, more buyers will be able to qualify to purchase, meaning that demand will skyrocket and the market will become extremely competitive for single-family homes at the lower end of the market price range (between $200K and $400K in Kamloops) as well as for "affordable alternatives" such as condos or duplexes. Secondly, sellers will inevitably take advantage of the hike in demand and the inflated borrowing ability of buyers when listing their homes. These substantial effects on both buying and selling will significantly increase the likelihood of multiple offers and/or price increases across the province, as we have already seen in the Lower Mainland.
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Addressing Negative #3:
While the HOME Program provides a monetary boost for people hoping to join the home ownership club, this assistance is really focused on buyers who already have a high enough income to qualify for a mortgage (as per the Program qualifications). There is still a significant portion of the population in B.C. that live in inadequate, poor quality housing or that live on the streets. Young people in the province can barely afford to rent comfortably, let alone buy a home. It seems that instead of concentrating funding on what some call a "very privileged" set of British Columbians, those who are most in crisis when it comes to housing in B.C. would benefit most from a focus on investing in co-op living options/social housing and on better protecting renters from unscrupulous landlords who are manipulating the Residential Tenancy Act. This new program will inevitably provide new and exciting opportunities for many first-time home buyers, but we must note that it will also hold much of our population at a stand-still in a very tight rental market where costs are high and vacancy rates continue to dwindle.
In the new year we will touch on why I believe this program offers a huge upswing for all segments of the market place. In the mean time if you have any questions or would like a complimentary market evaluation please don't hesitate to call me at 250.374.1925 or visit us at www.HomesInKamloops.com !
Vince Cavaliere In collaboration with Anna Langford
Team Cavaliere - River City Realty firstname.lastname@example.org 250.374.1925