Refinancing can free up cash for buying recreational or investment property
Fiona Anderson
Sun
As prices for Vancouver real estate continue to rise at dizzying rates, people are capitalizing on their new-found wealth by taking out new mortgages that give them cash to buy investment property or do home renovations.
In June, Vancity’s residential mortgage portfolio grew $98 million, the highest month in recent memory, said Neil Brown, Vancity’s vice-president of products and services.
“We are seeing more and more people take advantage of the equity that they have in their properties . . . tapping into their mortgage to make it work for them,” Brown said.
Most of the mortgages Vancity’s Chris Pughe arranged in July were equity takeouts to buy recreational property, or refinancings to do renovations, to rejuggle debt or to buy investment property, Pughe said.
Many people are also deciding to sell their homes because of the increased value, said Helmut Pastrick, chief economist with Credit Union Central of B.C.
“I would suspect most of the sales we are seeing are by existing owners,” Pastrick said. “They benefit when prices go up as [the] asset value has increased.”
Some sellers may choose to downsize, keeping the gain realized from the sale of their home for other purposes, Pastrick said. Others may upgrade, borrowing more to do so.
As prices go up, fewer first-time buyers can afford to enter the market, Pastrick said.
But Invis mortgage broker John Santos-Ocampo, who specializes in first-time buyers, hasn’t seen a slowdown in his business.
People continue to buy because the economy is good and employment is good, Santos-Ocampo said. But they are borrowing more money to do it.
“It’s rare to have someone in the Vancouver area with 25 per cent down because prices are so high,” Santos-Ocampo said. He’s not worried that this means borrowers are spreading themselves too thin as banks won’t lend money in those circumstances, Santos-Ocampo said. He’s also not worried about a bubble.
“If people are investing and expecting [the price] to rise and reselling it, that’s when you see a bubble. But I don’t see a lot of that,” Santos-Ocampo said.
Pastrick agrees that there is no bubble. For prices to drop dramatically would require an unexpected recession that causes consumer and business confidence to plummet, Pastrick said.
But it needs to be unexpected, like a terrorist attack on the scale off 9/11, Pastrick said, or an economic crisis in a foreign country, such as when Russia defaulted on its bonds in 1998. Barring that, Pastrick expects housing prices to continue to rise.
“Unless one sees [confidence plummet] in the next while then housing should hold up and in my view will post some further gains” Pastrick said.
Pastrick expects double-digit increases in prices to continue next year.
“It’s a reflection of the strong housing market in the Lower Mainland,” Pastrick said.
© The Vancouver Sun 2005