BIG CHANGES MEAN BIG OPPORTUNITIES It’s really how you embrace the change
As many of you may know, on Monday October 3, 2016 the wise and all-knowing Canadian Government dictated that they will be again be changing the horizon of the Canadian Housing Market. These changes start to take place on Monday, October 17, 2016 and lending institutions have already begun enforcing the new guidelines.
I attended a great meeting yesterday, with my colleagues where we had the opportunity to listen to some great industry professionals. Chief Economist of Dominion Lending Centres, Dr. Sherry Cooper, representatives from Genworth Canada, Scotiabank, First National and many other professionals in our industry with a voice. They made a lot of excellent points and they provided amazing insight that you are not going to get from the media.
First of all I truly believe this is a great opportunity for Home Buyers. Especially in the next 3 – 6 months. From my opportunities to listen to Benjamin Tal, Chief Economist for CIBC and Dr. Sherry Cooper, it appears these changes have come around to ‘slow down’ the housing market. They want home prices to stabilize, they want to increase rates, they want to curb foreign investment, and they want to keep the Canadian dollar low.
How will it really affect you as a home owner or home buyer?
Well, first of all, we all know that there are lots of buyers out there that just can’t afford to get into this market or are waiting until the market slows down. If the market slows down, then best of all, there will be no more multiple offer situations!! Back to the good old days where after your realtor shows you half a dozen homes, you go in with a fair offer and insist on 5 days of financing.
Secondly the market is going to slow down which they speculate will result in a 10-15% decrease in home prices. This is similar to the Vancouver Housing Market. That’s great news!!! All of those First Time Home Buyers will be able to get a nice home in the Peel Region under $500,000.00. Better yet, lower home prices, will negate the impact of the new ‘stress test’ rules. You won’t need an income of $90,000.00 to purchase that $450,000.00 home because now that home will be less than $400,000.00.
Finally I urge you to consider those renovation projects. For those individuals who have been sitting on the fence about selling; speculating that if they just wait another few months, their home will increase in value even more. That is not going to be the case. You need to get your home on the market now. If you have debt to refinance now is the time. If the government get’s what they are looking for, home prices will drop and rates will increase. Now, more than ever, is the best time to get the most out of your investment at the lowest rates.
I wanted to also take a moment to reiterate what the real changes are that may impact you in the immediate future:
- October 17, 2016 – The three Default Insurers CMHC, Genworth and Canada Guaranty, will mandate that anyone with a down payment of less than 20% must qualify for their new mortgage under the Bank of Canada Qualifying Rate. This is only a slight change as this has always been the case for clients wanting a term less than 5 years or a variable rate mortgage. This may lower your buying power, but as I mentioned earlier, lower home prices are on the horizon.
- There have been no additional changes by the Default Insurers to the rules pertaining to Beacon Score requirements, amortization and maximum insurable mortgage amounts. These rules have been in place for over 2 years and in my opinion, did nothing to slow down the market at that time.
- In an effort to minimize the ‘sweet’ deal that foreign investors have been realizing in the past years, an additional tax, likely in the form of a land transfer tax, will be enforced for all foreign investors. To ensure that the purchase is compliant with the Canadian laws, all Canadian homeowners will be required to report the sale of their home on their income taxes. The purpose of this is again to allow the government to tax foreign investors accordingly. In the opinion of the mass yesterday, one family member, working or going to school in Canada, filing Canadian Income Taxes and living in that home, would eliminate exactly what the government is trying to enforce.
- The Canadian Mortgage Industry as per the numbers from CMHC, Genworth and Canada Guaranty has a .28% default ratio. I personally don’t know what the challenge is for the government. The average First Time Home Buyer in my area, pays $16,200.00 for this insurance and Canada Globally has the lowest percentage of homes being taken back. However, if they need to share the burden, it is speculated that lending institutions who insure their mortgages will be asked to take on 10 – 15% of the .28% expense.
The other major change comes in on November 30, 2016 and affects the mono-line lenders which for a short period of time may limit the options that home owners have with refinancing their home and purchasing rental properties. It won’t take long for organizations like First National, MCAP and Street Capital to bounce back and come up with a great business model that will mitigate these changes.
On a final note, it is an extremely valid to point out that 35% of Canadians choose to use Mortgage Brokers/Agents for their Mortgage options. However, even with that large share of the market, not one industry professional was asked to comment or contribute to the decision that the Finance Minister announced at the beginning of this week. Everyone, not just the consumer, was surprised by these announcements.
We are not sitting back though and just letting the cards fall where they may. Key Mortgage Professionals in our industry are lobbying to soften the blow. Not to stop it, because we know the Government is not going to admit that they are wrong and definitely these changes are going to happen. No, what these organizations such as Canadian Mortgage Broker Association, Dominion Lending Centres and Canadian Mortgage Professionals just to name a few, are working towards, are solutions to manage the impact. Variables such as, a lower Qualifying Rate, extended amortizations, lower insurance premiums are being presented to the government. Impact statements and analysis are making their way to Parliament Hill. We have voices in this economy and they are definitely going to be heard.
Change is inevitable and how we embrace change always makes the difference in our career, in our life and in our happiness.
Mortgage Broker M09001257