Canada Tightens Mortgage Rules

[Clarkey]

Originally Posted by northcrunk

Jim Flaherty is one of the worst finance ministers we've ever had in Canada.

I'm curious, why do you say that?

The thing I fault him with is saying he wouldn't change the income trust structure and then turning around and doing it. I know he had to do it but I wish he didn't lead people astray by insinuating he'd leave it be.

[Deegee]

Originally Posted by Mike Oxlong

That would be the case. If you were on a 35 year amortization with a 2 year term, you would effectively have a 33 year amortization left upon renewal.

If you wanted to go with a new lender you would have to renew at 30 years, there by increasing your payments, or renew with your current lender at 33 years.
(This is what I have heard so far, I am waiting for clarification on a couple things and will update if I hear differently)

CMHC insurance is portable. You would not need to requalify at 30 years.

You could keep your original amortization intact providing you are not borrowing extra money.

[Winsor_Pilates]

Originally Posted by Finner

I'm not a mortgage broker, primarily focused on investments, but from what i know the mortgage must be closed (ie.possession date) by March 18th.

Originally Posted by Mike Oxlong

I'm just waiting to get an answer back from CMHC but if I recall from last year, as long as the deal is live (not a pre approval) and submitted before March 18th then you will still be able to get the 35 year amortization.

Any deals submitted after March 18th will be subject to a 30 year am.

I will post the definite answer once I get a response from CMHC.

I talked to a couple of other brokers today and it seems you're right Mike. Key is, it has to be "approved" not just "pre-approved".
This is interesting for developments like Drake that I'm selling. I can have buyers get approved, and not take on their mortgage until the building is ready in 2013, yet still get 35 yr amortizations.
Should help me close some on the fence prospects in the next 2 months.

Also, I was unaware until today that this is just for high ratio mortgages. Anyone putting down 20%+ can still get a 35 yr amortization.

[Winsor_Pilates]

Originally Posted by AFireInside

Come on. Give me a break here. If the lowest starter homes drop, the rest of the houses drop. If all the buyers cannot get approved for as much, sure, they will look for what they can afford. However the higher level houses will lose potential buyers as well. So when they have difficulty selling because their potential buyers have less money, they lower their prices. This forces the houses below to also lower their prices and so on down the line.

There's no guarantee the lowest starter home drops. If people who could barely afford to buy, are now people who can't afford to buy than they might just not be buying a home anytime soon. It's not like people will just lower home prices to help them out and remain entry level buyers.

Simple example assuming there are even numbers of buyers at all price ranges, and change in an affordability change of 50K:
10 Buyers who could afford 200K> now afford 150K and likely can't buy
10 Buyers who could afford 250K> now afford 200K and buy there
10 Buyers who could afford 300K> now afford 250K and buy there
and so on....
There's still 10 buyers for every price range (except the very top $million dollar + homes as top). The people selling at any price level, don't have to reduce pricing because they've still got the same amount of buyers looking; they're just different people.
The people at the bottom who can no longer afford to be buyers are SOL, but that's the whole point anyway as they're likely not ready and qualified to be home owners.

Now this example is really over simplifying things, but so was your argument (admittedly), so I've kept the the same.
In reality there is different amounts of buyers (and supply) at different price ranges and not everyone will have to shift affordability because of this.

About 30% of buyers were using 35yr amortization anyway, and of them a certain percent were putting down 20%+ so they're not effected anyway.
So we're talking a change in affordability to about 20-25% of buyers. Will that be enough to effect overall prices and major shifts in affordability? Maybe, but I think it's much harder to say than you're alluding.
Add to this other factors such as immigration, income, job growth, reduction in rental vacancy and the group of buyers for any given price range could be growing from those factors as well.

If you were looking at an $800,000 house, then all of a sudden you are only approved for 740,000. The house at 800,000 all of a sudden has fewer buyers, and will likely have to lower their price to sell.

As shown in the example above, not true. The 800K house now has a new group of buyers looking at it who had to move down from 850K.

Now those houses in the mid 700's are competing with a house thats a higher quality and worth more. I don't know about you but if there are two houses that are the same price I'm definitely taking the nicer one.

They're not competing because the 800K still has buyers and didn't have to lower. You just have to lower your expectation as a buyer and look at the homes in your new (740K) price range. Just as the 850K buyers did who are now buying the house you wanted.

Regardless, starter homes will always sell for what those looking at starter homes can afford, and if thats 290,000k on average, the market will adjust.

I think this is where are argument ultimately differ. Starting buyers don't dictate the bottom of the market (see Vancouver for evidence). Find me an affordable started option anywhere in that entire city.
No one slows down so starters can catch up; starters have to do the catching up.

[Slava]

Originally Posted by AMG_G

I think he is making the best out of the situation. Just like Obama, he inherited a pile of what can he really do to make things better in 4 years?

I don't want to turn this thread into a political discussion, but lets not kid ourselves. He inherited a great fiscal situation. Any problems that he did inherit he could've fixed in the few years leading up to the financial crisis...you know, when things were booming?

Anyway, I'm not taking a shot at his actions here. I actually think that in the long-term this seems prudent and makes sense.

[AFireInside]

I think this is where are argument ultimately differ. Starting buyers don't dictate the bottom of the market (see Vancouver for evidence). Find me an affordable started option anywhere in that entire city.
No one slows down so starters can catch up; starters have to do the catching up.[/QUOTE]

You are clearly missing the point. If every pool now has 10 new buyers except the very top level million dollar houses. Well it will force the top houses to HAVE to lower their prices to gain those buyers back or they will not sell. Thats how supply and demand works. You're a realtor correct? We've both seen MLX listings, where someone lists a house and over the course of the year they are forced to lower it usually in 10,000 increments until they find enough interest. I see this everyday. If those in the 800,000 don't lower their prices as the million dollar homes decrease their prices no one will buy them. They will be forced to go after those buying in the 700,000 range by lowering their prices. If a million dollar home drops their price to 850,000 and an 800,000 dollar home doesn't decrease their value, why would anyone purchase the 800,000 home. Clearly the million dollar home is nicer, and is now a similar price.

If there is a kia dealership and an audi dealership side by side, and audi lowers their prices to be comparable to kia, who's buying a kia? Kia will have to lower their prices, or offer incentives to attract from a different pool of buyers. This is not a knock on Kia for all those kia drivers out there!

As for Vancouver, clearly there are still enough people to buy the properties. This means the lowest level in Vancouver are buying houses for 600,000. Thats what the market dictates. There is enough demand. Right now in Calgary there isn't enough demand for 300,000 houses. The changes brought in and simple supply and demand will determine the price.

If what you are saying is true, that means there are more houses competing for fewer buyers. Meaning prices will drop and those at the bottom will be able to buy..


Those at the bottom don't dictate it, supply and demand will dictate. If a percentage of buyers are all of a sudden priced out, and all buyers have less money, then the most expensive houses will drop, pushing all those below them down.

It's simple if there are 1000 people looking to buy in a pool of 2000 houses you will have competition to sell those houses, that will be achieved by offering the best price or incentive.

If you remove 200 buyers, now there are 800 people looking to buy 2000 houses, creating even more competition. If there is less money to go around for each purchaser left then those who want/need to sell will likely have to decrease their asking price. This lowers the typical market price of a property, and would likely cause those remaining to have to lower their price to compete.

Either way it doesn't really matter. You clearly think there is no way prices can decrease.

By the statements you've made, eventually everyone can and will be priced out of the market. Nothing effects the market, nothing decreases prices, and a large pool of buyers can be priced out of the market, despite there being more supply than demand. So as housing prices keep rising and interest rates go up, and down payment requirements increase more people will be priced out. Eventually only 3 people will be able to afford houses. Makes no sense.

meh... I'm tired I don't know if this post makes sense... It makes sense to me at least!

[chemgear]

Originally Posted by Winsor_Pilates

I think this is where are argument ultimately differ. Starting buyers don't dictate the bottom of the market (see Vancouver for evidence). Find me an affordable started option anywhere in that entire city.
No one slows down so starters can catch up; starters have to do the catching up.

I think I get what you are saying WP, but I think your analysis assumes that each price segment has the exact same number of buyers. There has to be a reduction of potential buyers as you move higher and higher into each price segment (rather than having "10 buyers" in each bracket.") As buyer affordability gets knocked down a bit with these changes, I think there are slightly fewer buyers in each newly downward shifted bracket. Not sure if I'm making any sense, it's kinda late.

Anyhow, I'm not sure it's the buyers that have to catch up to the price demands of the sellers. Unless they are absolutely desperate to buy (that seems a bit strange.) If the price isn't right, the properties just sit, and sit - probably why for most of 2010 only just ~ 6% of homes sold at or for more than (the last) list price. Everything else had to be priced lower. Looking at the daily sales, it still seems like nearly all the homes are getting a price discount off the listed amount.

And on a really out there sidebar, anybody ever hear of a home being relisted/refreshed EVERY SINGLE day?! I went to go view this place many months ago - they've been dropping the price by one thousand dollars every freaking day still with no bites. Nice place, nicely finished too - just priced too high. Isn't that an expensive process/a ton of paperwork?

[Winsor_Pilates]

I'm not gonna reply to everything, cause we'll just go in circles and half of it's rambling nonsense about me thinking only 3 people can buy or some junk like that.

You are clearly missing the point. If every pool now has 10 new buyers except the very top level million dollar houses. Well it will force the top houses to HAVE to lower their prices to gain those buyers back or they will not sell. Thats how supply and demand works. You're a realtor correct? We've both seen MLX listings, where someone lists a house and over the course of the year they are forced to lower it usually in 10,000 increments until they find enough interest. I see this everyday. If those in the 800,000 don't lower their prices as the million dollar homes decrease their prices no one will buy them. They will be forced to go after those buying in the 700,000 range by lowering their prices. If a million dollar home drops their price to 850,000 and an 800,000 dollar home doesn't decrease their value, why would anyone purchase the 800,000 home. Clearly the million dollar home is nicer, and is now a similar price.

Yes I'm a Realtor, and no I'm not missing your point. I get it, just don't 100% agree.
I see why your argument puts downward pressure on prices, not disputing that; but there's many other factors at work and this change only effects a relatively small proportion of home owners.
Also, I'm sure there's far less 35yr amortizations amongst the million dollar crowd than the starter home crowd, so that will influence the effects as well.

If what you are saying is true, that means there are more houses competing for fewer buyers. Meaning prices will drop and those at the bottom will be able to buy...

It's simple if there are 1000 people looking to buy in a pool of 2000 houses you will have competition to sell those houses, that will be achieved by offering the best price or incentive.

True, if we once again ignore all other factors. This may actually bring a lot of buyers off the fence, as does decreasing rental vacancies, increased immigration, increased incomes etc.
The net result this year could be more buyers coming into the market, despite some people on the low end now being taken out.
All I'm saying is that it's hard to call, and you shouldn't look at it based on just this mortgage change that effects maybe 20% of buyers; most who can likely handle the shift anyway. Not everyone is buying up their absolute limit approvals either.

Either way it doesn't really matter. You clearly think there is no way prices can decrease.

There it is, was waiting for that comment. knew it was coming!
I've never claimed prices can't decrease, here or in the other real estate threads. Even in debating with you here I said "Will that be enough to effect overall prices and major shifts in affordability? Maybe, but I think it's much harder to say than you're alluding."
I'm hardly claiming prices can't decrease, more so claiming not to have all of the answers (unlike you).
I was even singing the tune of single digit % decreased for 2010, and that's what happened; but nice try painting me with that brush. As a Realtor, I guess I should be used to it.

[Winsor_Pilates]

Originally Posted by chemgear

I think I get what you are saying WP, but I think your analysis assumes that each price segment has the exact same number of buyers. There has to be a reduction of potential buyers as you move higher and higher into each price segment (rather than having "10 buyers" in each bracket.") As buyer affordability gets knocked down a bit with these changes, I think there are slightly fewer buyers in each newly downward shifted bracket. Not sure if I'm making any sense, it's kinda late.

I agree, I was just responding with to simple analysis with simple analysis. The amount of buyers/supply in each price range is different, as is the amount of people in the buyer group using 35yr amortizations.
Two points crucial in what effects this will have, which is part of the point I'm trying to make. It's really not a simple thing to figure out at all. If it was, we'd all be filthy rich buying and selling at the perfect times.

And on a really out there sidebar, anybody ever hear of a home being relisted/refreshed EVERY SINGLE day?! I went to go view this place many months ago - they've been dropping the price by one thousand dollars every freaking day still with no bites. Nice place, nicely finished too - just priced too high. Isn't that an expensive process/a ton of paperwork?

A listing has to be up for a min 60 days. I guess they're just changing prices all the time, but that's really odd.
It's not difficult or expensive, just strange.

[chemgear]

Originally Posted by Winsor_Pilates

I agree, I was just responding with to simple analysis with simple analysis. The amount of buyers/supply in each price range is different, as is the amount of people in the buyer group using 35yr amortizations.
Two points crucial in what effects this will have, which is part of the point I'm trying to make. It's really not a simple thing to figure out at all. If it was, we'd all be filthy rich buying and selling at the perfect times.

A listing has to be up for a min 60 days. I guess they're just changing prices all the time, but that's really odd.
It's not difficult or expensive, just strange.

Hmmm, no extra paperwork or cost eh? I guess that makes a little more sense perhaps - I'm assuming they're doing it to proc their listing in the automated searches people setup. I think they'll show up each day as a "price reduction."

[AFireInside]

Originally Posted by Winsor_Pilates

I'm not gonna reply to everything, cause we'll just go in circles and half of it's rambling nonsense about me thinking only 3 people can buy or some junk like that.

Yes I'm a Realtor, and no I'm not missing your point. I get it, just don't 100% agree.
I see why your argument puts downward pressure on prices, not disputing that; but there's many other factors at work and this change only effects a relatively small proportion of home owners.
Also, I'm sure there's far less 35yr amortizations amongst the million dollar crowd than the starter home crowd, so that will influence the effects as well.


True, if we once again ignore all other factors. This may actually bring a lot of buyers off the fence, as does decreasing rental vacancies, increased immigration, increased incomes etc.
The net result this year could be more buyers coming into the market, despite some people on the low end now being taken out.
All I'm saying is that it's hard to call, and you shouldn't look at it based on just this mortgage change that effects maybe 20% of buyers; most who can likely handle the shift anyway. Not everyone is buying up their absolute limit approvals either.


There it is, was waiting for that comment. knew it was coming!
I've never claimed prices can't decrease, here or in the other real estate threads. Even in debating with you here I said "Will that be enough to effect overall prices and major shifts in affordability? Maybe, but I think it's much harder to say than you're alluding."
I'm hardly claiming prices can't decrease, more so claiming not to have all of the answers (unlike you).
I was even singing the tune of single digit % decreased for 2010, and that's what happened; but nice try painting me with that brush. As a Realtor, I guess I should be used to it.

Look I'm not trying to paint all realtors the same I think there are some great ones out there and I don't know you from a hole in the ground.

Just every realtor I've talked to since late 2007 has told me repeatedly prices won't decrease they will only increase. Of course that's not all, and I know you don't necessarily think that. I wish my old realtor was reading this because they disagreed with me in early 2008 when I backed out of the market telling them I thought prices would drop.. I'm happy every day that I backed out of that despite their advice.

You stated exactly what I said in the other real estate prediction thread no one knows all the answers we'd all be rich if we did..


Next, the point I'm trying to get across is that a large portion of potential buyers can't be priced out or else properties will not sell. Supply and demand will ultimately determine price. If you knock out a large portion of first time buyers for a particular price range, the prices will likely drop. You are correct that other buyers who were previously in another range may move in to that price range and buy but the fact is it still eliminates a large number of buyers from the pool. Thus creating more competition and typically this results in a price drop.

I apologize if you think I'm trying to single you out, you seem pretty fair as far as I'm concerned. It just gets a little tiresome week after week hearing from CREB and other realtors that you can get priced out or that prices will be anywhere from level to a 20% increase over the next year. Is that possible? Absolutely, is it likely? At those point all signs point to no. I mean I got to see someone eat about $50,000 on a sale of their property that they purchased in 2008....

I don't know I'll certainly never say never to a price increase, but I just don't see it, I think they've exhausted all avenues to keep prices low, and are now in the process of correcting the market by increasing down payment, lower amortization, the inevitable increases interest that are on the way.

I certainly don't think Flaherty is finished by any streatch. Next I think you see another increase in down payment, along with the increases in interest (obviously not up to Flaherty).....

Anyways that post got off track we've been having good discussion in these two threads so I'll try not to go off too much.

[Winsor_Pilates]

Originally Posted by AFireInside

Look I'm not trying to paint all realtors the same I think there are some great ones out there and I don't know you from a hole in the ground.

Just every realtor I've talked to since late 2007 has told me repeatedly prices won't decrease they will only increase. Of course that's not all, and I know you don't necessarily think that. I wish my old realtor was reading this because they disagreed with me in early 2008 when I backed out of the market telling them I thought prices would drop.. I'm happy every day that I backed out of that despite their advice.

You stated exactly what I said in the other real estate prediction thread no one knows all the answers we'd all be rich if we did..

Fair enough, I like to think we (Realtors) can all make our own opinions, but I'll admit many of them like to paint rosy pictures all the time.

Your comment was directed at me though about "you clearly think there's no way prices can go down" and I was simply defending my own viewpoint, as this isn't my view.

I think we'd both also agree that it's not really a Realtors job or expertise to tell you which way the long term market is going anyway. We're just making predictions and giving opinions like anyone else.

Next, the point I'm trying to get across is that a large portion of potential buyers can't be priced out or else properties will not sell. Supply and demand will ultimately determine price. If you knock out a large portion of first time buyers for a particular price range, the prices will likely drop. You are correct that other buyers who were previously in another range may move in to that price range and buy but the fact is it still eliminates a large number of buyers from the pool. Thus creating more competition and typically this results in a price drop.

Agreed about the supply and demand.
My argument is simply that I don't feel this will remove enough buyers from the pool, and I think more buyers will be joining the pool this year from other sources as well which will level things out. Just my opinion though, who knows...

I apologize if you think I'm trying to single you out, you seem pretty fair as far as I'm concerned. It just gets a little tiresome week after week hearing from CREB and other realtors that you can get priced out or that prices will be anywhere from level to a 20% increase over the next year.

No worries, I understanding the frustration of it. Many Realtors (and CREB/CREA) frustrate me too, because their comments are often taken as if we all think the same, and I hate constantly having to explain that we don't.


Anyway, just wanted to give a quick reply to that and now it's back to the normal thread.