“If you want into the Canadian real estate market with the lowest possible entry-level lending terms and conditions available then I believe your time could be running out.” Three weeks ago I posted this.
Tonight I read this online from the Globe and Mail: Ottawa to tighten mortgage rules.
So now I’m taking this opportunity to address the impact further changes to mortgage financing rules, expected to be announced tomorrow, could have on homebuyers, property owners and the economy in 2011.
Changes to mortgage financing rules in April 2010 were measured and balanced, and after a minor correction there were expectations within our industry for a stable and balanced local housing market in 2011.
Mark Carney, the Governor of the Bank of Canada noted in December: “In the housing market, the Canadian government has already taken important measures to address household leverage … In addition, the Bank of Canada’s interest rate increases reminded households of the interest rate risks they face. These measures are beginning to have an impact.”
The federal government, as anticipated, further tightened mortgage-financing rules; in particular, shorter amortization periods thereby making it more difficult for some Canadian families to realize the dream of homeownership, which could destabilize housing markets, and subsequently the economy.
The negative impact modifications to the allowable amortization period or minimum down payment requirements could have are of concern to me. These changes could create affordability problems, especially for first-time buyers. First-time buyers are the first link in a chain reaction of real estate activity. We need buyers in the market to allow existing homeowners to change properties or rent. Creating obstacles for first-time buyers could seriously impact the rest of the market, including retirees looking to downsize.
Further tightening of mortgage rules could have other far-reaching consequences for the Canadian economy. It risks causing a home price correction, a drop in the net worth of households, lowered economic growth and reduced tax revenues. Consumer confidence would be damaged, labour mobility would be impeded, and unemployment would stay elevated.
The housing sector played a key role in Canada’s economic recovery. In fact, a report published by Altus Group in 2009 found the typical MLS® home sale and purchase between 2006 and 2008 produced $46,400 in spin-off spending. Based on this research, forecast annual sales in 2010 generated an estimated $20.5 billion in spin-off economic activity and over 185,000 jobs.
The negative impacts additional mortgage financing rule changes will have on homebuyers, homeowners and the economy are potentially devastating and this is what concerns me. Indeed, financing a home is the foundation of household equity and is a gateway for many to financial security.
To those of you who heeded my suggestions late last year, you have all comfortably dodged this bullet. There is still a small window of opportunity for buyers and sellers (or those renewing mortgages) before these new guidelines come into effect but you’re going to have to act fast and be aggressive.
The federal government announced this morning three changes to the rules for government-backed insured mortgages. http://www.fin.gc.ca/n11/11-003-eng.asp
First, the government will reduce the maximum mortgage amortization period from 35 to 30 years. Second, the maximum amount of the value of a home that can be re-financed will drop from 90 per cent to 85 per cent. And finally, government insurance will no longer be available to financial institutions wishing to insure home equity lines of credit.
The adjustments to the mortgage insurance guarantee framework will come into force on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured by homes will come into force on April 18, 2011