Chad Moore Calgary Mortgage Broker

OSFI: “I’m about to make it more difficult to purchase a home”.

Calgary’s housing market: “I think things are working themselves out? Don’t do anything drastic”.

OSFI: “Hold my beer”.

Effective January 1st, 2018 here’s what will change when qualifying for a Mortgage:

This, from the latest press release from OSFI (Office of the Superintendent of Financial Institutions) regarding new Mortgage rules.  Read it here.

1. Qualifying for a conventional Mortgage.  The qualifying interest rate for a Mortgage, greater or equal to 20% of the property value, will be the greater of 2% above the contract interest rate OR the Bank of Canada Mortgage qualifying rate (MQR).  Today, the MQR is 4.89%.
2. Enhance loan-to-value measurement.  In the press release, “…lenders to enhance their loan-to-value (LTV) measurement and limits so they will be dynamic and responsive to risk“.  Vague at best.  Here’s my interpretation of this rule change: for “high risk” Mortgage applications, lower LTV’s of borrowers might be asked.  High risk might be defined by areas of the country, borrower credit, tenure of employment or employment type of the borrower, price of property, property style.  I’m unclear of the metrics of defining “high risk”.  Is this left to each lender to determine?  Will there be clear cut rules?  As I learn, I’ll let you know.  Stay close.
3. Restrictions on creative Mortgage lending.  Alternative Mortgage lenders have been bundling second Mortgages so buyers could reach lower loan-to-value thresholds which helped them qualify for a home.  Loophole closed.

What impacts will this have in Calgary’s market place?

With any type of uncertainty, this might be in employment or home price direction or Mortgage qualifying criteria (or my relationship status etc etc), people’s default strategy to cope is “doing nothing”.  Hold the course.  Steady as she goes.  I can relate.

I think this primarily effects homebuyers because they “wait and see” (do nothing).  With homebuyers on the sideline waiting to see what happens, with the truth being “let’s see what happens to home prices” a vicious circle is created.

Vicious Circle

Home buyers wait to see if prices decrease.  Homes do not sell.  More listings are added to the market.  Home sellers primarily compete on being the lower priced commodity.  Home prices fall.  Home buyers, watching this unfold, are encouraged to continue to “wait and see”.  Vicious cycle continues.  We’re currently seeing this in Calgary’s condo market.  Data here.

Your Opportunity?

I predict home prices will face near term downward pressure.  There will be an adjustment period because these new rules will impact people’s home affordability.  This is downward pressure on demand.  People will qualify for less Mortgage, translating to a less expensive home.  Long-term Real Estate fundamentals will take hold again.

Buyers: Get clear with your Bank or Mortgage Broker on what Mortgage qualifying interest rate they’re using to “pre-approve” you.  This might directly effect what price range of home you’re looking at.  Connect with me to discuss.

Sellers: I’m not a Realtor*.  Consult with your listing Realtor*.  Price your home in the market!  The old “price it above the market with a little wiggle room to negotiate” might not work like it use to, especially IF the market begins to trend down.  Again, consult with your Realtor.

Owners: If ever you were thinking about refinancing your Mortgage, for any reason (debt consolidation, home improvement etc) connect with me TODAY about executing this.

Conclusion:

We continue to be in an era of tightening Mortgage rule changes.  The opposite was once true in the Mortgage industry.  We increased amortizations from 25 to 40 years.  We decreased down payments to a minimum of 5%.  Refinance’s were eligible up to 95% of the home value.  Self employed qualifying was much simpler.  This increased housing demand and home prices reflected as much.  Ahh, the good old days ;-).

Today, much of the opposite is true.  Things are t-i-g-h-t.

Trust me to help you navigate and honestly advise you on your Mortgage and Real Estate options moving forward.  Talk to me.  No charge.  No obligation.

Cheers,

Chad Moore
C: 403-809-5447