People are itching to know what short-term damage the new mortgage rules will inflict on real estate prices.
So far, in the first full month of tighter insured lending, home sales are down almost 6%.
Additionally, we hear (anecdotally) that insured mortgage application volumes are noticeably lower, even after accounting for seasonal adjustments.
CREA economist Gregory Klump says, “The broadly based decline in August sales activity suggests that some buyers may no longer qualify for a mortgage now that amortization periods for high ratio mortgages have been shortened.”
“As the lynchpin of the housing market, lower first-time buying activity will have downstream effects over the rest of the market.”
Klump adds that it could take “a few more months of data” before we can “gauge the broader impact of recent regulatory changes on Canada’s housing market.”
With fall being the second busiest mortgage season, we should get a good read on things by early December. By then we’ll also get commentary and data from banks reporting their August through October earnings results. The fourth quarter will be their first full fiscal quarter under the new mortgage regime.
In the meantime, we in the business all sense what shorter amortizations, tougher refinance rules and tighter debt ratio limits will do. And it’s not bullish for home values in the near-term…which is exactly what policy-makers want.
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Related stories: New mortgage rules…, OSFI mortgage guidelines
Rob McLister, CMT
Last modified: April 28, 2014
In many markets, there was a slowdown of sales prior to the mortgage changes, and others like Toronto were prime to change from their aggressive increase of sales and pricing. The constant threat over the last few years of higher rates to come, did mean that we stole / borrowed some concerned buyers from future markets, or we might have seen a slowdown last year.I don’t believe the lower sales of the last few months relate directly to the mortgage changes, but going forward these changes will compound the slowdown. Canadians tend to believe that real estate is always going up or always going down ( until a change happens) and react accordingly to help make that belief a reality. Mortgage changes and a skeptical consumer means slower markets in 2013
Hi Dr. M, Thanks for the post. The recent slowdown is definitely not all mortgage rule driven. No argument there!
Cheers…
My gut feeling is that we’ll drop at least 10-15% nationally and won’t make new highs for five years or more.
First-time homebuyers are definitely feeling the impact and feeling pushed out of the market. We’ll definitely have to wait and see what the long-term effects are, but with no moves to revisit the new rules, and the interest rate looking to stay where it is, it’s hard to imagine much difference in activity for the future than what we’ve seen over the past few months. Heading into the winter season, it’s undoubtedly going to be a very slow next few months.