If you have been watching the recent news you likely have heard the federal government will be tightening mortgage rules on homes over $500,000 in February. Homebuyers are currently required to put down a minimum of 5% to qualify for Canada Mortgage and Housing Corporation insurance-protection that lenders insist on when providing a mortgage worth more than 80% of a home’s value. Under the new rules, homebuyers will now be required to have a 10% down payment on the portion of any mortgage over $500,000. The 5% rule remains the same for the portion up to $500,000. For example, if someone is looking to buy a $700,000 in February 2016 they will now need to have a minimum down payment of $45,000, which is what you get when you add five per cent of $500,000 and 10 per cent of the remaining $200,000. Buyers shopping for homes below the $500,000 mark will not be affected by the new rules.
According to our newly appointed Finance Minister, Bill Morneau, this move is designed to cool down hot housing markets, notably in Toronto and Vancouver, however, economists say the hike will actually hurt other markets, like Calgary’s, who is already wrestling with the downturn in the Alberta oil industry. According to a newly released study by CIBC World Markets, almost 10% of new home sales in Calgary will be affected-compared to only 4% nationally.
The Calgary Real Estate Board says almost 1/3 of MLS home sales this year involved homes valued at more than $500,000. The Canadian Home Builders’ Association-Calgary Region has also expressed concern over the changes, noting over 70% of new single-family homes in Calgary sold for more than $500,000. CHBA Alberta chief Jim Rivait weighed in stating “while most buyers of homes costing $500,000 or more already put 10 per cent or more down, we’re concerned when blanket national policies are imposed because of regional housing market issues.” So how did Ottawa respond to these concerns? Finance Minister Bill Morneau said the government looked closely at what the changes might mean for our struggling Alberta economy and noted that the “Alberta situation is challenging”. Additionally, he added “we want to make sure that we’re doing things that don’t negatively impact that market, and in fact, that’s one of the reasons why we were very careful about exactly what we did and only impacted those homes over $500,000 up to a million.”
So what should homebuyers and seller’s do in Calgary? Here are a few things to consider about the changes:
Previous mortgage rule changes: Between 2008 and 2012, four rounds of changes were made to tighten eligibility rules for new insurable loans to buy homes. Among them: the minimum downpayment was increased to 5%, the maximum amortization period was reduced to 25 years from 30, and the maximum insurable house price was limited to below $1 million. Arguably, these moves were intended to dissuade borrowers from making riskier purchases and instead encourage them to invest in less expensive homes. The new mortgage rules rolled out under Morneau are touted as a targeted measure designed to deter a segment of buyers from stretching into the market with a very low equity position. (For the disproportionate number of Albertans who will be impacted or need to sell their $500,000+ homes this will give little solace, I suspect).
Who will be affected most?: The average residential sale price in Calgary in 2015 was approximately $462,000. Therefore there are still many opportunities to purchase homes in the unaffected price range for first-time buyers in Calgary. However, first-time buyers who want to buy a new home that falls above the cut-off might feel the squeeze since they’ll be required to make bigger down payments to get into Calgary’s market in the new year. Additionally, those selling their $500k+ homes (especially Calgarian’s recently laid off or in need of relocation) may be impacted by these new regulations, especially if they have limited equity in the home and have to sell their home quickly.
Sales activity: The fact that these mortgage changes take effect in February could result in stronger-than-usual activity in the weeks to come (a typically slower time for real estate), as home-seekers and sellers try to get into the market before the new rules are put into place. However, according to CREB chief economist Ann-Marie Lurie “the housing market will reflect the realities of the economic conditions” and Calgary’s challenging market means “there is a greater need for market intelligence”at this time.
There is one thing that I know for certain, and that is, in a shifting market like Calgary’s “Experience Matters”. I am providing an isolated snapshot of the McKelvie Group’s home sales in the NW community of Tuscany to highlight our some of our experience.
If you or anyone else you know is in need of solid real estate advice or representation give me a call or message me.