Trista Anderson

Posted Wednesday, February 17, 2010 8:31 PM

Mortgage Changes Take Place

By PAUL DELEAN, The GazetteFebruary 17, 2010

Finance Minister Jim Flaherty announces three changes to mortgage rules aimed at helping protect the housing market without derailing it. Amendments to mortgage-lending rules announced Tuesday by federal Finance Minister Jim Flaherty are a judicious way of dealing with potential trouble spots in the real-estate market without derailing it, economic and industry commentators said. "It's not a major change, it won't change the nature of the industry, but it will be big enough to have an impact on the risk pockets and that's exactly what you wanted," said Benjamin Tal, senior economist at CIBC World Markets. "He's reminding consumers they must live within their means, but also stating clearly there's no housing bubble here and the market is healthy," added Michel Beauséjour, chief executive of the Greater Montreal Real Estate Board. Amid a growing clamour for some sort of government action to prevent a bubble and dissuade Canadians from taking on too much debt, Flaherty unveiled three changes effective April 19 intended to help prepare borrowers for interest-rate increases widely anticipated for later this year. Those proposing a down payment below 20 per cent now will need to meet the higher lending criteria for a five-year, fixed-rate mortgage even if that's not their mortgage choice or term. Homeowners who refinance will be able to withdraw a maximum of 90 per cent of the property's value, down from 95 per cent. And people looking to buy properties of one to four units they won't be residing in will need a minimum down payment of 20 per cent to get government-backed mortgage insurance. "While some will be unhappy with the new rules, the policies should reduce the risk of a boom/bust cycle in real estate that is in no one's interests," TD Bank Financial Group said in a report on the measures Tuesday. In his statement, Flaherty said that, while there is "no clear evidence of a housing bubble," we're taking "proactive, prudent and cautious steps to help prevent one." He called the Canadian housing market "healthy, stable and supported by our country's solid economic fundamentals." Low mortgage rates have fuelled a spurt in home-buying and rising prices across the nation in the past year and especially the last few months. Greater Montreal Real Estate Board statistics show the median house price in the metropolitan area rose four per cent in 2009, to $235,000, while sales volume increased eight per cent over 2008. But the market got hotter as the year went on, and a new December record was set with 2,819 sales, up 15 per cent from the previous peak in 2006. Some analysts maintain the minimum down payment should be raised to 10 per cent from the current five per cent and amortization periods limited to 30 years, down from the current maximum 35, so people don't overextend themselves in their haste to acquire property. But Tal said requiring a higher down payment for residential properties would have been "too aggressive," directly impacting about 20 per cent to 25 per cent of the market. "It's a fine line he (Flaherty) is walking," Tal said. "You have to act in a responsible way in a hot real-estate market, but you don't want to overdo it and derail it. What he's done is very surgical, directed to where it hurts rather than an umbrella response. "Speculators aren't a big part of the market, and neither are those who refinance just to take advantage of the system." Beauséjour said a one-per-cent increase in mortgage rates on an average house in the Montreal area translates into about $60 extra a month. If potential purchasers were hinging their budgets on rock-bottom mortgage rates that can only go higher, qualifications based on the five-year fixed rate (currently about two percentage points higher than for variable) should establish whether they'll have breathing room when rates increase, Beauséjour said. "If you can't handle it," he said, "you may want to review your needs." Beauséjour said the 20-per-cent requirement for rental properties will have an impact on that segment of the local market, where the minimum down payment currently is 10 per cent, but "there aren't many for sale right now. Inventory is low." Not everyone was happy with the new requirements. Brett Skinner, president of the Fraser Institute and director of its insurance policy research, said the problems in the market are caused by government intervention "and they're trying to solve it with more government intervention," which doesn't address the crucial issue of default risk. Federal law requires mortgage insurance - a one-time premium based on the total amount borrowed - for any mortgage that exceeds 80 per cent of the value of a property, and a crown corporation, Canada Mortgage and Housing Corp. (CMHC), supplies about 75 per cent of that coverage in Canada. It's currently guaranteeing about $480 billion in residential mortgages, almost double the total from five years ago. Taking the risk off the lending institution (which is the beneficiary of the insurance if the buyer defaults) "leads to riskier lending practices" while placing unnecessary exposure on taxpayers, Skinner said. He recommends that government privatize CMHC and withdraw completely from the mortgage-insurance market.

If you have any questions please feel free to email me, trista_anderson@live.ca.

Thank-you!

Trista Anderson

Windsor, Lasalle, Tecumseh Homesale Trends
	Average Sale Price	% Sale Price to listing price ratio	Days on market	# Sales units	% Sell/List Ratio	# of Active Listings
Sep-07	$158,000	94%	98	278	38%	3804
Oct-07	$166,027	93%	87	291	32%	3682
Nov-07	$171,251	none	80	258	34%	3801
Dec-07	$187,941	93%	91	159	39%	3435
Jan-08	$151,208	94%	94	182	28%	2217
Feb-08	$150,084	93%	82	250	45%	2198
Mar-08	$152,320	94%	99	214	40%	2333
Apr-08	$156,266	96%	82	281	35%	2533
May-08	$157,135	95%	76	361	40%	3842
Jun-08	$163,168	93%	94	331	37%	4017
Jul-08	$161,159	93%	84	346	38%	3993
Aug-08	$159,563	93%	84	335	45%	3849
Sep-08	$153,438	93%	94	325	43%	3844
Oct-08	$146,630	93%	87	263	36%	3665
Nov-08	$156,148	92%	86	172	28%	3682
Dec-08	$147,329	90%	86	146	34%	3355

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