As of January 1st, the Government of Canada imposed new banking rules that will impact homeowners’ ability to sell their homes.
The major change comes as an attempt to cool the overly hot housing markets of places like Toronto and Vancouver, where prices have been soaring to dangerous heights. The mortgage rule change will have a major impact on these markets, driving prices back down to sustainable numbers. It will hurt for a while, but the stabilization will be good for them in the long run. In the meantime, the blanket-ruling will affect all markets across Canada, including the much more stable Winnipeg housing market where prices have been as steady as the calm prairie horizon.
For the uninitiated, the big change goes something like this: every person acquiring a mortgage through a bank in Canada must qualify for that mortgage at the stress test rate currently as of writing this post at 4.99% interest rate. It doesn’t matter if your actual mortgage rate ends up being 2.95%, you have to be able to afford the payments at 4.99% or you don’t get the mortgage. It doesn’t matter if you’re paying 20% down or 90% down, it doesn’t matter if you’re getting the house at half its value. If you can’t swing payments at a 4.99% rate, you’re not getting the loan.
Not from a bank anyway.
No one can really say with any degree of accuracy what the full cause and effect is going to be, however, I do fully expect a shift in how buyers will be buying.
With a requirement to qualify for payments at a higher interest rate, what people can afford for a purchase price will shrink. That means buyers will be looking for homes at a lower price point than they would have before. Some estimate a spending reduction of 17% less which, on a $250,000 home, means a reduced house hunting budget of 207,500 – that’s a $42,500 decrease!
Here’s how that rolls out for sellers:
With this ruling’s enforced limitation on buying power, it’s possible that prices won’t just be driven down in Toronto and Vancouver, but also in Winnipeg.
At this point though, in January of 2018, it’s too soon to tell. Our market has been fairly steady and balanced, and historically Aswell, so I don’t personally think we’ll see a drop in prices as much as we’ll see a few more deals falling through as people adjust. I will continue to advise all of my clients to require any buyers who wish to see their home need to be preapproved – this guards against financing falling through, and guards my seller clients against wasted time, something I think will happen a little more with this new ruling.
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In Winnipeg, the spring market starts to wake from hibernation right after our local Festival Du Voyageur. People start pumping their way out of snowbanks, stomp their frozen feet awake, and begin looking at homes again.
Will you be ready?