Last month I wrote about the early signs of the housing market beginning to turn. Fewer offers, less FOMO, etc. Again, none of this should have come as a surprise, we’ve had two years of record home sales and runaway price growth, and trees don’t grow to the sky. The housing market always has ups and downs and this time is no different. The downs are coming, even if that is just a slowdown. When I wrote last months report, the Canada 5 year bond was yielding 1.5%, and today it sits at just over 2.5%. In just one month, the most important metric in Canadian housing moved 100bps. In case you need a reminder, the Canada 5 year bond prices our 5 year fixed rate mortgage. When yields rise on the 5 year bond, so too do borrowing costs for fixed rate mortgages. In other words, over the past 4-5 weeks we’ve seen the typical 5 year mortgage go from about 2.8% to 4%. We haven’t seen 4% mortgages in nearly a decade.
I know the media likes to talk about foreign buyers, investors, taxes, and housing supply, but at the end of the day, the largest influence on the Vancouver housing market is the cost of borrowing. Let’s run some basic numbers here on borrowing costs.