Mortgage Rules Exclude New Homebuyers, as Intended

junge frau hat sich verkalkuliertOne in five first-time buyers say last year’s mortgage rule tightening made them wait longer to buy, according to a just re-released BMO poll. That’s just what the Finance Department wants to hear.

That stat is in the ballpark of CAAMP’s fall finding that 16.9% of high-ratio borrowers from 2010 would not have qualified under today’s rules.

Meanwhile, despite fewer first-timers, average prices keep making record highs. It’s hard to kill demand with sub-3% mortgage rates being so plentiful (albeit, no longer on fixed terms over four years).

Moreover, while some expected new listings to be flooding the market by now, that’s clearly not happening on a national basis. Most homeowners refuse to be scared into selling by all the housing bubble and mortgage rule talk. Nationwide inventories have been dropping for three months in a row.

Other stats from BMO’s release:

  • 2012 mortgage rules made one-third of first timers in pricier B.C. wait longer to buy
  • The average price first-timer buyers expect to pay for their home: $300,000
  • The average first-time buyer’s down payment:  $48,000 (16%)

As noted in April, we still have trouble believing that last number ($48,000) because:

  • Past data from Genworth found the most common down payment for first-timers was just 5.0% to 9.9%
  • RBC’s recent Homeownership poll found that 62% of fledgling buyers planned to put down 10% or less
  • CAAMP found that only 11% of renters had $30,000+ for a down payment.

Rob McLister, CMT

  1. The mortgage rule changes had the intended impact. It forces young buyers to be financially prepared before taking on more dept than they can handle.

  2. Completely agree. In our industry we want to make sure people are put into homes they can afford over the long run as that can translate into repeat business. There are still a few more steps needed to add more stability to new homebuyers (10% downpayment minimum, etc). Price growth is still outpacing wage growth which means more needs to be done to bring them inline to prevent things from getting too out of controle.

  3. I dont think the government has any business meddling in this very personal business of buying a first home. the tories should stick to running the government and not telling young people when they can or cant buy a house by changing the rules. no wonder their popular support is going down the drain. they have lost me with that intrusive move.

  4. Average Joe, you are arguing against yourself here. By your logic the government should get out of the insurance business altogether and not guarantee any of CMHC, Genworth or CG. You can’t suck and blow at the same time.

  5. Ya, close down CMHC. I don’t need any government meddling. I am ready with to buy with 20% downpayment and a 25-yr amortization mortgage as soon as prices return to a reasonable level.
    Again, no government meddling please.

  6. i just dont like all this gov meddling in everything I guess. its gets tiresome listening to politicians talking about how they are worried about our debt load. do they really care? do banks really care? I think not.

  7. It’s especially tiring when the government can’t even manage it’s own debt. Its advice is hypocritical in every sense of the word.

  8. Please. How many of the paternalistic ‘well informed’ saved up 25% of a measly 87000 before they moved into that 1700 square foot monsterpiece? Apple’s to apples puhhlease. Oops.forgot that was the good ol 1980s. Interest rates? Who knows. All I know is that 25% of 87,000 is a lot less than 25% of 387,000. Why don’t we existing homeowners move out of the way so those younger than us can take their opportunity to sink or swim. Saving them from themselves? Did they do that to you circa 1950-1980? I guess you just had to be born first to be luckiest.
    .

  9. Speak for yourself.
    You may be lucky enough to have a big deposit but not everyone has 20% or needs to have 20%. I’d rather own with my 7% than pay someone else’s mortgage, even if it means paying the “CMHC tax.”

  10. For some people, paying someone else’s much smaller mortgage at a lower rate may be better then buying a place at record high prices in a historically low carrying cost environment where rates can only go up. A 1% rate hike = 10% greater mortgage payment and reduces everyone’s mortgage approval amount by 10% at the same time which pushes price demand down.

  11. I could agree more. It is always interesting how short people’s memories are when it comes to self interest. “I’m alright but God forbid if you should get the same chance as I did.” My generation ( I am 60+) has benefited more than anyone from the rise in house prices. It is our kids or our grand-kids who are being forced to save substantially more then we ever had to just get into the game. And at the same time it is my generation that has exported jobs and , not re-invested in industry and forced the our kids to carry huge debts from college to get a job that in no ways qualifies them for a mortgage. Sure we had different rules when we bought our first house but we could qualify for a mortgage even when only half the wife’s income was used . Today it will at least take a 100% of both and even that may not work depending on the market.
    John Woods – Mortgage Broker

  12. What do you want? A medal?
    It could take a young family a decade or more years to save 20%. If they qualify and want to pay CMHC fees to buy sooner, who is anyone to say they shouldn’t?

  13. When you buy a house from someone at an inflated price you’re paying for their mortgage and their retirement. When you borrow lots of money with a tiny downpayment you’re paying for my retirement. And when you pay the CMHC insurance fee you’re paying my taxes. I agree that this is a good deal.

  14. Thank you John Woods for a balanced, intelligent opinion. Whenever I hear “Thirty years ago the rules were like this and you people should just smarten up and realize you have had a free ride and now its back to reality” I reflect on your points.
    Everything was different 30 years ago. Nothing is the same, the facts of our economic life have changed drastically, so why is it a good thing that mortgage rules are turning back the clock?

  15. Where did I say they shouldn’t. I don’t agree with the government facilitating this, causing house prices to inflate which forces young families to pay CMHC fees in the first place.

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