It will soon be harder for your clients to buy a home

by Justin da Rosa05 Oct 2016
A wide-reaching policy change could force a boon in home sales in the short-term before causing a slight slowdown in various markets, according to one leading economist.

“Clearly, it’s more difficult to qualify for a loan and that’s true for everyone. To the extent that, in our most expensive markets, it’s already hard enough already to qualify for a loan I think the biggest impact will be in those regions,” Dr. Sherry Cooper, chief economist with Dominion Lending Centres, told REP. “But incomes vary from city to city, and so even in lower class cities I think this could binding. It won’t be binding for everyone but it will certainly have an impact on the marginal borrower and the firs-time borrower.”

The federal government announced a number of housing policy changes Monday, all with the intention of safeguarding the industry from overheating.

One of those changes is around insured mortgages. As of October 17, all homebuyers who take out an insured mortgage will need to qualify for the Bank of Canada’s benchmark five-year rate.

With the current BoC rate at 4.64%, in some cases, clients will have to qualify for a mortgage that is more than double their contracted rate.

In a bid to get ahead of that policy, Cooper predicts some sellers may flood the market.

“The other thing is it might be the trigger that puts more supply onto the market as sellers who have been waiting; thinking that prices will go up forever might say this is the trigger to get them to list their homes,” she said. “I think this could have far-reaching effect.”


  • by Oscar Vidal-Calvet 10/5/2016 1:23:20 PM

    I should say beforehand, that I'm not an economist, but I do have an opinion. . .
    - Interest rates are a vital factor in the equation of real estate, as well as are employment and inflation.
    - Interest rates have an effect on the value of our currency and therefore on import and export of our goods
    - Interest rates are always under the microscope of local or foreign investors.
    - Let's say that two years ago, the Canadian Dollar was almost at par with the US Dollar; nowadays we as Canadians pay 32% premium on the exchange for US Dollars, it means that we lost 32% value on all our assets (home value, RRSP's, savings, and all sort of investments in Canadian Dollars) including our income.
    - We accept paying more for everything (local or imported), but according to the government, the inflation rate is below two percent and well under control.

    - What is going to happen next in real estate ?

    - I have noticed, as you probably did, that last year in GTA we had a multiple offer situation in almost every real estate transaction; well the second part of this year we do not have the needed inventory and neither the number of purchasers.
    - I also believe that new government regulations, changed something in the lenders' mind making them more exigent and demanding; the current lack of inventory will put a brake on our yet active real estate market, when this happens, a great sector or our economy will too, slow down.
    As per the Toronto MLS Historic Residential Data, taking
    the month of July '12, I noticed that "Sales / Active Listings" had a ratio of 36.11%
    this past month of July '16 "Sales / Active Listings" had a ratio of 87.8%
    furthermore, the calculated ratio of Sales / New Listings for the month of July '12, was 53.2%
    and Sales / New Listings for July '16 was 73.8% .
    Now while in July '12 we had 13,796 new listings inJuly '16 the New Listings were only 13,490

    - The would-be sellers, in the real estate market, know they could get a good buck for their property but also feel there is not inventory and do not want to risk their stability in an uncertain gamble of becoming purchasers.
    - It is understood that the higher price of the houses is also in play and limit the buyer's ability and qualification for a mortgage.
    - We all agree, borrowing money must have a cost, but I do not think that interest rates have to be un-affordable in a way that it pushes people to borrow money on the black market.
    - All of the above is indicating me that the real estate market is already up to a level where it will stay like that until real employment growth happens until our currency gets back its strength and stops depending on oil prices, and interest rates remain still affordable.

  • by Robert 10/6/2016 7:37:54 AM

    10 years ago interest rates were hovering around 5% and people were not freaked out by that, considering at the time, the rate was considered decent. Houses were still selling quickly here in Toronto and often in multiple offers. Nowadays with historically low interest rates, people are worried if those rates climb when it comes to buying a home. The feeding frenzy all started with those interest rates getting lower and lower over the last decade. This is part of the problem as to where we are today. Why didn't we stop lowering those rates when our real estate market was already on fire and the prices were already accelerating, instead they were lowered to a point that prices have gone through the roof and now those same purchasers may be in hot water if those rates start to rise after their fixed rate term (.e./5 years) is over.

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