Elevated interest rates putting pressure on Lower Mainland presale buyers

Elevated interest rates are increasingly putting presale buyers in Metro Vancouver and the Fraser Valley in a tough spot.

When you buy a newly built home, you often agree to a price years before it’s constructed but generally don’t figure out the financing until a few months closer to completion.

As a result, some buyers of preconstruction homes are finding they can’t qualify for a mortgage at the price they’ve already agreed to with the developer — due to surging interest rates.

Even those in the industry aren’t immune from this.

Realtor Zach Campagne, who sells homes in the South Surrey/White Rock area and beyond with Balance Real Estate Group, found himself in this situation late last year when buying a townhouse along with his wife.

He says they had to sell some investments and get some family help in order to close the gap, showing this can happen to anyone.

“The tricky part with presales is basically, you’re in limbo from when you qualify, when you buy, until the time you move in,” Campagne said, noting this is the case unless a buyer locks into long-term financing, which can be significantly more expensive.

“Nobody was expecting interest rates to go this high, this fast. [The Bank of Canada] decided to just do it all at once. That caught a lot of people off guard, especially in the presale market.”


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Given his knowledge of the industry, Campagne said when budgeting for the purchase, he had laid out a buffer to allow for a potential rise in interest rates — just not at this level.

It’s hard to know the scale of how many people are caught in this situation, given the presale market is much less transparent than the resale home market.

But Jesse Kleine with Sutton West Coast Realty says a search of MLS with the keyword “assignments” in Greater Vancouver and the Fraser Valley indicates a doubling of those listings when November and December of 2021 are compared with the same period in 2022, as a percentage of total new listings.

That suggests at least some people are trying to get out of those deals.

“We’re definitely seeing an increase in the amount of people trying to assign their units before completion on presale projects,” Kleine said.

“Qualification for the amount of mortgage you can get has dropped about 20 per cent using the stress test over the last 12 months, and so if people’s incomes didn’t go up by that amount and they were maxed out with their former plans, then they’re not going to be able to complete on the property.”

Both Campagne and Kleine believe we could see more of this in the months ahead, unless interest rates drop off, which is not the mainstream view economists have.

“Because presale prices are still for the most part above current market value, what they can sell it for, they can complete on the project with private financing and the interest rate might be 10 or 12 per cent, but they can still complete, and then they can bring that to the market and sell it and still break even or make a profit,” Kleine said.

“Where I think we’re going to see the bigger problems is later 2023, when even if you complete on a unit with private financing, you’re still $100,000 under water, and then you’ve got a 10 or 12 per cent mortgage, and it’s going on for who knows how long until you can sell that unit for a profit.

“So those will be much bigger problems.”

While those who have locked into deals to buy preconstruction homes may find themselves squeezed, there are opportunities for those who want a new home but aren’t locked in.

Kleine said he was able to negotiate a nine per cent discount for a client buying a preconstruction unit in Burquitlam last month, which would have been a rare occurrence in recent years.

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