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OSFI announces strictest mortgage rules ever… what you need to know.

HARDER TO QUALIFY WITH 50% DOWN THAN WITH 5% DOWN.. DOES THIS MAKE SENSE?

October 2016, our Federal govt announced a number of new mortgage rules including the infamous new ‘stress test’ for all insured mortgages.  Mortgage default insurance is required for all mortgages greater than 80% loan to value.  You have to qualify at the bank posted 5 yr fixed rate, which is usually around 1.75% to 2.00% higher than your actual rate, and with a maximum amortization of 25 yrs max.

These ‘rules’ were brought in last year to protect us from ourselves.   To ensure we could handle any large interest rate hikes at renewal time.  Sort of like big brother watching over us to make sure we don’t borrow more than we can afford. (btw, we already had lending rules in Canada.  Our mortgage arrears were and still are at record low levels.   Seems like our Banks, credit unions and other lenders are doing a pretty good job of lending.  Is more govt intervention necessary?  Most experts say no.)

Today, Jeremy Rudin, OSFI Superintendent, joined the party…. well, more like rained all over ever Canadian homeowner’s party (current and future).   OSFI, not wanting to be left out, announced they would impose more mortgage rule tightening for all mortgages that were UNDER 80% loan to value.    Again, to protect us from ourselves just in case interest rates should sky rocket at your renewal time.   Here’s a summary of the changes and how they will impact consumers, homeowners, and the real estate market:

  • A new minimum qualifying rate for uninsured mortgages.  The ‘stress test rate’ will be your contract rate + 2.00% or the 5 yr posted fixed rate, whichever is greater.(that’s right, your may have to qualify at a higher rate than those with insured mortgages above 80% loan to value.. how does that make sense?)
  • Federally regulated financial institutions must establish and adhere to appropriate Loan to value limits that are reflective of risk and updated as housing markets and the economic environment evolve (yeah, I’m not quite sure what this one means either.. stay tuned)
  • Federally regulated financial institutions are prohibited from arranging with another lender a mortgage, or combination of a mortgage and other lending products, in any form that circumvents the institution’s maximum Loan to value ratio or other limits in its residential mortgage underwriting policy. (this has dire consequences for those that won’t meet this historic new ‘stress test’.. effectively, the govt is telling you to not buy a home if you don’t fit in this new shrinking qualifying box…. or sell your home if you need to access the equity..)

 

HOW THIS AFFECTS YOU

  • buying with less than 20% down payment, no effect.  You already have a ‘stress test’.
  • buying with more than 20% down and you’ll have to pass a tougher test, that’s right, a tougher test than those with less than 20% down.  (Make any sense to you?  me neither.)
  • around another 15% of homeowners will NO longer qualify for a mortgage regardless of it being a purchase or if you wanted to refinance.
  • expect rental, condos or houses to become way more expensive as demand will spike.
  • we’ll see a spike in real estate sales from now until Jan 1st as homebuyers will scramble to get in prior to the new rules taking effect.
  • most credit unions are provincially regulated and for now, won’t be affected..  (that could change if the provinces amend their rules)

 

POSSIBLE SOLUTION TO DISCOURAGE HOME SPECULATORS BUT ENCOURAGE HOME OWNERSHIP

If you want to discourage speculators, make them hold the property for 5 or 7 years.  Bring in a declining speculation tax for anyone that sells a non-owner occupied home in less  than 5 years.  Reward those that hold real estate for longer periods.  You’ll have less transactions.  Encouraging longer holding times, more rental units on the market and higher vacancies.  More rental supply will also resolve high rents.  Bring back more realistic mortgage qualifying guidelines.  Encourage and promote buying investment properties.

A year ago, the Federal govt made several rule changes that effectively made it more expensive and difficult for consumers to borrow.  The list of changes was so long that most Canadians didn’t bother to react because it didn’t affect them that day.  But as we are seeing now, more consumers are experiencing reduced access to mortgage money.   They can’t refinance their mortgage.  They can’t draw on their built up equity in their homes.  It’s only when you need to borrow do you realize the extent of the changes.  Each and every one of us will be impacted.   These new policies will only make home ownership more difficult.  It will also slow our economy.

Perhaps the credit unions can pick up the slack and help …  stay tuned.. there will be more to share on these changes.     One thing is for certain.  You need to speak with an experienced Mortgage broker to understand what your options are.  It’s almost impossible to go it alone.. and you don’t have to.  Mortgage Brokers work for you, not the Bank.  They have access to dozens of competing lenders.

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

Spring housing market in the Fall?

Fewer homes in the summer.  Lower average home selling price in the summer.  That’s this year’s headline.  But it could also apply to last year or the year before or the year before that.

What hasn’t been said much is that house prices almost always go up in the Spring and fall during the summer. 

This year isn’t much different.  Except that this Spring, we saw ridiculous price increases in the 20% range.

That’s just not sustainable.  Check out some of these graphs from Canadian Real Estate Association.

This summer, house prices have fallen a little more than average.   And sales are also down compared with the last 2 years.  But listings haven’t increased.  In fact, listings dropped in July signalling we could have reached the bottom.

Hey, if we were in a housing bubble, you would have seen new listings continue to spike up.  That’s when we know the market will have changed gears.

 

PENT UP BUYER DEMAND?

Some are speculating that we could see a busy Fall market this September or October.  The Fall has historically been the 2nd busiest housing market.    If we look at Vancouver in 2016, after they announced their 15% Foreign tax rule, their market went soft and was very quiet.  Many pessimists were saying it was the bubble bursting.

Six months later and Vancouver’s market is busier than ever. Fully recovered.  The initial shock of the Foreign tax rule came and went.   We could see that same sort of comeback for Toronto.

A WORD TO OUR FEDERAL GOVERNMENT AND REGULATORS…

To the Federal govt:  Please, no more mortgage rule changes.  Let the market absorb all the massive changes already made.  Listen, I’m telling you with 28 years of mortgage lending experience.. I can’t recall when qualifying for a mortgage has ever been harder… and I was around during the last real estate recession of 1990.

Non-bank lenders are being penalized as their cost of funds are higher than BIG SIX BANKS (thanks to the new Fed govt mortgage rules), hence driving more customers towards the BANKS… THE WINNERS:  BIG SIX BANKS.  THE LOSERS: CONSUMERS. Let’s bring back competition among Mortgage Lenders… and let’s make mortgage financing accessible again.  The pendulum has swung way too far to the conservative lending side.

BANK OF CANADA RATE HIKES ON HOLD?

The Bank of Canada hiked the Prime rate by 0.25% in July.  It was headline news for weeks.  Many said this was the 1st of many hikes to come.  Today, the forecast is for a possible October hike.  But that isn’t a sure thing.  And if the uncertainty with the housing market continues or if the NAFTA trade agreement gets turfed like President Trump says, you can bet the Bank of Canada governor will think twice about raising the rates.   More likely a rate drop!

Stay tuned.. Maybe we’ll see a Spring market in the Fall?

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

Canadians bought more U.S. real estate than almost anyone else!

From April 2016 to March 2017 Canadians spent $19billion buying U.S. properties, according to the U.S. National Association of Realtors.

Put another way, Canada was only behind China for all foreign purchases of U.S. real estate in 2016.   That’s an incredible stat that deserves more attention.

And what’s not been talked about is where Canadians are getting the money to buy these U.S. properties.  It isn’t so easy for a Canadian to borrow money from US Bank.  So, instead, Canadians are borrowing in Canada by refinancing the mortgage on their house, or getting a secured line of credit.  This is called leveraging.  Borrowing to invest isn’t a bad thing.  Most Financial Planners and advisor promote this.

THE STATS SHOW WE CANADIANS ARE SAVVY INVESTORS

Yet, all we keep hearing about is how Canadians are borrowing and spending like foolish children. And that’s just not true.  Here’s some numbers from 2016 …

Continue reading “Canadians bought more U.S. real estate than almost anyone else!”

Housing market is active but will slow in summer as it ALWAYS does..

Much has been written about the Canadian housing market.  Even more about greater Toronto and Vancouver.  The pessimists are waiting for a collapse.  The optimists are hoping the prices keep going up.  Then there’s the realists.  They would like to see the market slow and maybe even for prices to go down, so that we don’t have a housing bubble. Which one are you?

When it comes to the housing market, I’m a realist.

Every Spring, for the last 10+ years, the real estate market in Canada heats up.  Prices increase, they sell faster, and supply can’t keep up with demand. It’s become the norm.  In June, July and August, the market gets very quiet and prices go down.  That’s right, they actually go down.

This year was no different except for 2 things..  Supply was very low in January, February and March, causing selling prices to jump as much as 20% over last year in some markets.   Now, let’s look more closely.. Continue reading “Housing market is active but will slow in summer as it ALWAYS does..”

Toronto 15% Foreign tax, new Rent controls… it changes nothing!

15% Foreign home buyers tax, not a big deal

Last year, Vancouver introduced a 15% foreign homebuyers tax.  I predicted it would come to Toronto after 6 months.

Today, Ontario’s govt has copied Vancouver by introducing a 15% foreign homebuyers tax.   The hope is this will discourage foreign investors from buying and speculating on the Toronto housing market (by the way, there is no data to prove that foreign investors are a factor or contributing to the red hot housing market).

Vancouver tried this last year. But what happened?  The amount of sales slowed, but just temporarily. And house prices didn’t really drop.  This year, Vancouver house values are up over 3% and climbing.   Continue reading “Toronto 15% Foreign tax, new Rent controls… it changes nothing!”

Housing bubble is coming… again?

You’ve seen them before.. but they went silent for a few years.  I’m talking about the housing bears.  The pessimists that say house prices are too high and will crash.  A housing bubble.

Are they right?  Maybe.  But here’s the thing.  We’ve been hearing that house prices are too high for over a decade.  One of the more vocal pessimists is David Madani, Economist for Capital Economics.

HOUSING BUBBLE?

Madani was on BNN this past week saying we are in a ‘Full blown housing bubble’.   Hmmm, that sounds familiar.  Let me think… when did I hear that before?  Oh, that’s right, 2011.   He said, we could see house prices drop by 25% in 2011.  And he was completely wrong. (hope you didn’t listen to him). Continue reading “Housing bubble is coming… again?”

Panic buying? When will the housing market slow down?

 

hot-housing-marketHouses selling over asking price is becoming the norm, these days.  Kinda crazy.  Sometimes a house is just listed under market value to attract a frenzy of buyers. An old tactic that has worked well in larger urban markets.  Today, that tactic is being used in smaller communities, too.

What’s unclear is if this selling tactic is contributing to houses selling for more than they’re worth.  And what is a home worth, anyway?   I always thought a house was worth what someone was willing to pay in the open market.  That’s still true in most cases, today.

When I see reports of houses selling for $100k, $200k and $300k over asking, it makes me wonder.  How long will this market last?  Will it crash?  And if so, when?   It’s hard to make forecasts and I can’t see into the future, but let’s examine this a little.

WHEN WILL THE HOUSING MARKET CRASH? Continue reading “Panic buying? When will the housing market slow down?”

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