There has been another round of Mortgage rule changes, set to take effect January 1st 2018. Read what they are here.
With any decision this large, effecting so many people, in such a diverse economic country as Canada, there will be positive and negative results. Here’s a look at what those might be for YOU.
Lower Home Values?
You’ve heard me talk about supply and demand before. Here. Here. Increasing the qualifying Mortgage interest rate, for all Mortgage borrowers, decreases the pool of available buyers at the top end of their home affordability. The bottom line is People, purchasing at their maximum, will qualify for a less expensive home.
However, in my experience, not everyone is purchasing at their maximum affordability. Just the opposite. In my client meetings, I clearly help people understand Mortgage qualifying ratios. I often bring up the term “house poor” which seems to catch people’s attention.
I think the intention of Office of the Superintendent of Financial Institutions (OSFI) was to do exactly this. Slow housing demand (primarily focused in different area’s of Canada: Toronto & Vancouver).
For those of you thinking about entering the housing market, continue to stay close to near term changes in price movement. My personal opinion on the matter is this change will have a short term effect on the market. There will be an adjustment period. This might be more market psychology than anything. Whenever there is uncertainty in the market place, the default decision of a people is to “do nothing”. They enter a wait and see mindset. This, in and of itself, stalls the market.
These Mortgage rule change are also aimed at major financial institutions (big Banks). Some home buyers were increasing their down payment to circumvent the high ratio Mortgage qualifying rules. This decreased Government backed insured Mortgages, which was the point of last Fall’s Mortgage rule change. This did not however decrease overall Mortgage demand. Up until these recent Mortgage rules take effect, buyers can source secondary Mortgage financing to achieve at least a 20% down payment, circumventing high ratio Mortgage qualifying. This ends January 1st, 2017. I think a lot of these kinds of Mortgage were submitted to major Banks. Again, this closes a crafty loophole to help people qualify to purchase a home which shrinks homebuyer purchase demand.
Importance Of Consumer Spending:
65% of Canada’s GDP is made up of consumer spending. This is H-U-G-E. Why? Because I think Canadians have been spending our way out of recession since 2008. Fueling our spending have been low interest rates and easy access to credit. This continues to change.
Based on results, low interest rates were a necessity, in reaction to the financial crunch in 2008. The BoC then raised rates in 2010, then lowered them because of the 2014 oil shock, then recently raised them again.
In combination to low wage growth, low inflation, slowing national Real Estate, increasing interest rates AND tightening Mortgage qualifying criteria, consumer spending is set to slow. Should this happen, hawkish sentiment for additional BoC rate increases are less likely.
What Are My Opportunities?
I like to re-frame challenges to opportunities. I’m telling you, the Mortgage lending market is becoming increasingly more complex. Looking at my Mortgage “rate-sheets” is like a choose your own adventure novel. If this, then this. If that, then this. If, if, if, ….Insane.
The opportunity for you is to understand where you’re at as a homeowner or buyer. This might be with a big Bank, mono-line Mortgage lender, Credit Union or alternative lender.
I have access to all of these different Mortgage lenders. And guess what? Some Mortgage lenders are not regulated by the same OSFI criteria as other financial institutions. Credit Unions are provincially regulated. You have options.
You want to know your options. Real Estate is big dollars in your life. It’s important. Get it right, now more than ever, by connecting with me to discuss your Mortgage financing options.
Talk soon,
Chad Moore
