Sheldon and I have long thought there would be another decrease in the maximum amortization period for mortgages this year. It makes sense since the Federal Government decreased the maximum amortization from 40 to 35 years a few years ago, and then further decreased it to 30 years last year - we always assumed the end goal was to go back to 25 years. According to a Reuters poll released today, we are not alone in our prediction.
The majority analysts polled expect some sort of tightening of mortgage rules this year - it could be an increase in the minimum downpayment (currently 5%), a decrease in the amortization period, or other restrictions designed to reduce household debt levels in Canada. Although the analysts agree that housing is overvalued only in Toronto and Vancouver at this time, household debt levels hit an all time high last year in this country.
It is expected that any changes to mortgage rules will come before the spring housing market, some say between now and the federal budget (expected at the end of March). Assuming the rules are tightened, how will this affect our housing market in Edmonton?
Looking at our sales chart below, it is easy to see the annual pattern - sales tend to increase month-over-month for the first half of the year, and decrease month-over-month for the second half of the year (peaking in May or June).
The feds have made changes to the lending rules three times in recent years, and each time they have given Canadians advance notice of the changes. In October, 2008, the maximum amortization was dropped from 40 years to 35 years and the minimum down payment was increased from 0% to 5%. We almost always see sales drop between August and September, and that year there was a jump in sales in September (and then the global financial crisis happened). In April, 2010, changes were made to HELOCS and refinancing, investors were required to put a minimum of 20% down, and they introduced a rule that you had to qualify at the 5 year fixed rate even if you were going to take out a different mortgage (with lower interest rates). That year the sales peaked early (in April) and trailed off for the rest of the year. In April, 2011, the maximum amortization period was dropped to 30 years, and it really didn't seem to affect our market at all.
We will have to wait and see what changes, if any, are made to the lending rules before we can make much of a prediction on how the changes will affect our real estate market in Edmonton. At this point, we have the lowest unemployment rate in the country, and the fastest growing population which tends to lead to a strong housing market. I'm not sure these changes will have any affect on our market at all, other than to push some buyer's plans forward slightly.
"There is some genuine concern that the housing market and households have been overstretched," TD Securities economist Mazen Issa said. "But in the absence of several triggers for a housing market decline, which are not likely to be forthcoming until at least the middle of next year, the underlying theme is of gradual moderation."
Triggers could include rising mortgage rates, or a sharp increase in unemployment.
"I would say aside from those two cities [Vancouver and Toronto], there's really little evidence whatsoever that the market has gotten ahead of itself," Doug Porter, deputy chief economist at BMO Capital Markets, said.
"Whatever strength we've seen in most cities has simply been the flip side of the decline in borrowing costs.
"Provided we don't get hit with an interest rate shock, then I think the market can adjust to a moderate backup in rates over time."
As we've mentioned a few times in the past few months, we expect Toronto and Vancouver to drag down the national housing numbers for the next while, just as it dragged them up for the past couple of years. The national real estate market gets a lot of press, but it really does little, if anything, to show what is happening in markets across the country. National stories can certainly have an affect on consumer confidence, so we will have to wait an see whether or not our strong, local economy over powers the national media.
Couple things. There are important factors that will affect Edmonton real estate, no matter what, regardless whether people think only Vancouver and Toronto are the only areas at risk. Every area is at risk.
Lower amortizations, larger down payments, tightening of CHMC, and rising rates will do justice to every market, it’s basic math at this point. However, if they say we’re tightening the rules effective 2013 or something stupid like that, then it will be very gradual, and dare I say create a rush to buy.
If it’s harder to get financing, there are less buyers, and people can’t sell easily, prices go down. That’s it. So when real estate organizations come out say, we expect a mild 5% increase in prices for the next 2 years, they are completely out to lunch.
It’s time to get back to the time when you had to save 20%, and there was pride in finally buying a home.
Now is not the time for every 25 year old kid to screw themselves up with huge amount of debt.
“Lower amortizations, larger down payments, tightening of CHMC, and rising rates will do justice to every market”
Yes, but — they aren’t likely to happen at the same time. If the government decided to enforce 25 year term at 10% down, there certainly will be fewer buyers and thus fewer mortgage applications, causing the lending rate to drop.
WRong, lending rates (fixed) are driven by the bond market which are driven by the emotions of the stock market. Try again.
I was looking at two properties in the last week. One is a duplex both sides right on 75st. Within a day of looking at it someone put in an offer and made it pending. The other was a house in the SW of Edmonton and it got snapped up after being on the market for 15 days. I have been buying homes and rentals for the last 3 years and have not seen properties move this fast. Looks like I will not have the same time to think things over that I have become accustom to and I will need to be a little quicker on pulling the trigger.
Your experience is very similar to mine right now. if you really look at the 300 – 400k there are not alot of great properties and if something comes up it gets snapped up. I haven’t seen a February move this fast since 2006 and I am hoping this is temporary and that the inventory rate can balance things out shortly.
Sheldon, did you mean February? – January is over. Last check there are approx. 800 listings between the price of 300-400K in Edmonton Are you saying out of that number very few are decent properties?
Yes he meant February… I’ve changed it. Thanks!
What we are seeing is that the best properties are going quite quickly, especially single family homes under $400k. There is high demand in this price range but overpriced properties are still just sitting there.
Perhaps the lack of quality properties in the sub $400 000 category will be upped soon by all the more “expensive” ones that aren’t movingand need massive price reductions.
Oil’s going to $125, then higher still!
Hold onto your hats! There’s a boom a-comin’!!!
Mortgage rule changes will reduce affordability which in turn will reduce prices… No doubt about it. Only question is whether the sellers will reduce prices ?? Due to the almost free money they are able to hang on to the place for more time than usual.
Ain’t a-gonna be no need fer reducin’ no prices!
What with all the multiple offers and people wrestlin’ each other on the front lawns fer the deed to the house that’s a-comin’ this spring!
Mortgage rule changes ain’t gonna have no effect on them thar buyers witha the money in their pockets itchin’ ta git out!!!
Like I said… “Looky there Martha! There’s a boom a-comin’! Git yer shawl and hang on tight!!!
Given what I’m hearing and seeing in the jobs market.. I think we’re going to have a good year in Edmonton real estate, regardless of these rules.
The influx of high earning job seekers will want to buy, the lower earners will need places to rent. This is the first time I’ve been bullish about edmonton real estate in many years.
Throw higher oil prices and a possible Iran war…. dare I say… another boom?
Or I could be completely wrong…
Oil should go as high as July 2008, before it goes almost as low as late 2008. Everything else likely unfolds similar.
Oh man, I can’t stand how oil affects everything. Oil prices rise, prices for everything else rise. It’s ridiculous. Then throw in the fact that half or all of the wars in the past few decades have been about oil–it makes you wonder if driving a gas powered car is even ethical!