If you live in Vancouver and were thinking of refinancing to 80% loan-to-value, you might want to accelerate those plans.
Perhaps you’ve seen this tipsy little chart of Vancouver average home prices. In the case of detached homes—which spark the biggest headlines and arguably contribute the most to market psychology—prices have just collapsed $294,000 (17%) in one month.
Now, Couver’s ever-optimistic home bulls contend that averages are skewed thanks to high-value sales. They urge us to concentrate on the HPI index, not average prices. Whatever.
All this author can say after 18 years of studying price charts is that this one is scarytown. It’s more than enough to make some skittish homeowners hit bids, at least in the short term.
Hence, the advice: If you need to tap your equity (refinance) to the tune of 80% loan-to-value, or get an 80% LTV credit line for future borrowing needs, you should be filling out your application as you read this.
When home prices do what they did last month, appraisers become more conservative. Anecdotally we’re already hearing about North Shore and West End/West Side appraisals coming in softer than expected. And lenders and insurers could also be fast to react, by tightening up internal underwriting criteria and cutting back loan sizes.
Now, lest anyone get the wrong idea, nobody reading this should run out and refinance for refinancing’s sake. This is solely an alert for prudent Vancouver owners who A) must refinance anyway, and B) plan to live in their home a long time. For those folks, waiting a few extra months to close could potentially result in their loan amount being cut back by the lender.
Of course, this discussion is academic if the GVA quickly rebounds. Stranger things have happened. In fact, in the back of my mind I almost wondered if Vancouver’s real estate board misplaced a decimal point when publishing that historic –$294k print.
A stunning one-month move like that can scare the bejesus out of weak-handed homeowners. So, watch the number of new listings and expedite your refinances, Vancouverites…just to be safe.