Value declines jeopardize subprime market

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While brokers have their eye on a falling number of sales, in Vancouver they’re now ogling falling prices and the threat they could pose subprime deals.

“It’s really one of the few areas that we expect to see real growth,” Michael Sjerven, owner of Vivid Mortgage, told MortgageBrokerNews.ca. “So it’s of concern that the volume of subprime deals could be in jeopardy if values fall another 5 per cent to 10 per cent in Vancouver.”

The nail-biting has everything to do with 20 per cent equity requirements around subprime deals imposed by both institutional and individual private lenders. In B.C., many potential clients for those types of deal are now skirting that figure, with even a value decline of 5 per cent likely to cancel their access to refinancing in the alternative sphere.

Prices on B.C.’s Lower Mainland have already taken a tumble.

While the number of sales for Metro Vancouver dropped 22.7 per cent in 2012 from 2011, the average home price fell to $730,063, or 6.4 per cent down from a year ago.

For December alone, the average selling price for a home in B.C. fell 3 per cent to $498,205.

That decline is actually expected to continue, especially in the Vancouver area, as Richmond and other top-tier markets grapple with a slowdown in high-end home sales. But the fallout won’t be limited to brokers working the tony end of the market, with most market forecasters pointing to overvaluation across Metro Vancouver.

The situation represents a double whammy for Vancouver mortgage professionals as they move to reconnect with their subprime roots as a way of compensating for the dwindling number of A deals.

Still, for now the number of subprime deals is expected to grow in the short-term as homebuyers, with more than 20 per cent equity in the homes or more than 20 per cent put down, find themselves shut out of the A market by tighter lending guidelines courtesy of the Office of the Superintendent of Financial Institutions.
 

  • Paul Therien - CENTUM on 17/01/2013 5:38:58 AM

    I think that brokers have an opportunity to really step up to the plate and show Canadians that we provide a high value service, and one that is not rate driven...

    We all see the news and we all experience the uncertainty ourselves... but brokers are the experts, people who live and breathe this industry. Imagine how the average Canadian must feel as they are bombarded with this constant doom and gloom messaging from the media?

    The Canadian consumer, now more than ever, needs sound advice on how to navigate these difficult times. We have an opportunity to step up and become strong consumer advocates who provide solutions so that Canadians can achieve their financial and homeownership goals. It is up to brokers… do we sit quietly in the corner and lament the good old days, or do we step up to the plate and give consumers comfort provide meaningful value?

  • Paolo Di Petta | dipettamortgage.com on 17/01/2013 7:08:06 AM

    Well said, Paul.

    I would also like to mention that not all "subprime" deals are alike. As long as there's enough of a buffer in the original LTV and the property is still marketable, the deals can be pretty safe.

    In fact, I'd be more worried if I were like banks doing those insane low down payment, long amortization, cash back mortgages they were doing a few years ago. Those are a much bigger risk than most of the private "subprime" deals I work on.

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