The new mortgage changes will change the way we buy, especially for those who want to buy their first home or upgrade to a larger home. This will reduce purchase power between 20%-30% based on the new rule of qualifying at a mortgage rate of 4.65% despite your locked in rate, effective 17 October 2016. This is required for insured 5 year mortgages with less then a 20% down payment.
For example; a buyer who previously approved for a purchase price of $400,000.00 with 5% down payment, now the approval will be based on a 4.64% mortgage rate with a purchase price of $320,00 which is a 20% decrease.
How is this a good thing? In Provinces like Vancouver and Toronto it will bring down outrages home prices and make homes more affordable.
Here's how it will bring down housing prices; first, the amount of people who can purchase will decrease. This will create less demand and more competition among Sellers. 2nd, overtime this will decrease home values across the board but also create higher demand for lower priced homes, In my opinion it will balance the market. For Vancouver and Toronto, housing prices will decrease providing a more stable and reasonable real estate market.
How is this good for other Provinces in Canada? The condominium and townhouse market has incurred a drop in demand over the last 2 years in Edmonton Alberta, mainly due to the effects of our economy by the oil industry. In Edmonton, Alberta, $350,000 and below represents a majority of condos and town homes. Many within this demographic are directly or indirectly affected by the oil Industry. Condos and town homes will see a higher demand since new buyers may not qualify for detached homes valued at a higher price.
This change will increase the rental market and decrease the climbing vacancy rates. This is a great opportunity for real estate investors or those who have a in-law suite. The increase in demand for rent will be caused by buyers willing to wait for a larger down payment or for a co-signer in order to qualify for the same purchase price previous to Canadian Governments mortgage rule.
In summary, this will improve the demand for lower valued properties like town home and condos. It will benefit investors with lower vacancies and higher demand for newly renovated homes under the $350k mark. Over time, homes prices will decrease for buyers and those who own condos and town homes will experience more demand.Those who do sell their condo or town home will seek higher price points to purchase the homes most first time home buyers cannot. Thus, creating similar demands we see prior to the change as of 17 October 2016.
RE/MAX River City