Buying a home is the biggest purchase many of us will make in our lifetime. With a whole new host of rules and regulations having to do with mortgages that came into effect last year, it put getting a mortgage a bit harder for a lot of people, but they weren’t done yet. January 1st 2018 was the start date to another three new mortgage rules that experts say will hurt the fastest growing segment of Canada’s mortgage market: the uninsured mortgage.
Analysists say that these new rules will affect 1 in 6 homebuyers across the country and the stricter stress test that applicants will have to pass is expected to lower the purchasing power of potential homebuyers by up to 21%. Since people buying and selling property is what the real estate market is all about, it is estimated that the new rules may depress housing demand by up to 10%.
So what are the new rules? First is the stress test on all new uninsured mortgages. Now potential buyers will have to qualify for a mortgage using the new minimum qualifying rate which will be the greater of the 5 year benchmark rate published by the Bank of Canada or the lender contractual mortgage rate plus 2%. The biggest impact with this new test will be the amount the homeowner can qualify for. It will also serve as a safety net of sorts though, to make sure that you aren’t biting off more than you can chew on the quest for that perfect new home.
Second is the fact that now lenders are required to enhance their loan to value measurement and limits to ensure risk responsiveness. What this means is that the lender will have to establish and adhere to loan to value ratio limits in terms of risk and update these policies as the markets and the economy itself evolves in the future. All of these new rules are governed by the Office of the Superintendent of Financial Institutions, or OSFI, and they have directed these lenders to have an internal risk management protocol in place for the higher priced home markets.
The third new rule is that lenders can’t bundle loans together to get around rule #2. There are now restrictions on certain lending arrangements that are designed to avoid or circumvent loan value limits. No more will lenders be allowed to arrange things to get around that maximum loan to value ratio.
Of course, these three new rules are in addition to those that came into effect last year. Back in October of 2017, the OSFI implemented the change that the stress test will be applied not only to high ratio loans but to all loans, which puts potential buyers into the process of reconsidering home prices, which in turn has an impact on the market. However, the new rules only apply to those lenders that are federally regulated so places like banks and credit unions are affected; people can still choose to get their mortgage elsewhere.
Experts are forecasting that the stricter lending rules plus the slight rise in interest rates should put a downward pressure on home prices and in turn will offset the market momentum that has been seen as Alberta recovers from the recession. Although the economy is better the new lending environment will cause its own changes in the market. The hope of a more balanced market in Calgary and area will be led by attached and detached sectors of the market while the apartment sector continues to struggle with all of that inventory that is still quite prevalent.
It is a new year and one that will unfold to reveal whether or not the experts are right. So far, the housing market in Calgary isn’t changing much from 2017. Sales activity went up in 2017, but there is still too much supply. Numbers for January 2018 show that the first month of the year kept consistent with the last three years of January stats.
Overall in the city of Calgary, there were 958 sales in January which is up 1.59% over last year. New listings totalled 2458 which is a 3.15% increase and the months of supply went up over 10% and now sits at 4.83. The average price for a home in the city is $468,763 which is up just 0.27% over January of 2017.
Breaking it down a bit further for January 2018: In the detached market, a total of 583 properties were sold, up just a bit from last year. There were 1,289 new listings, up almost 5% and the months of supply went up 17.83% from last year now sitting at 3.75. The average price for a detached home remained the same from last year and is at $545,834.
Semi-detached properties sold a total of 99 units in January of 2018. That’s up 19.28% from this time last year. New listings were up over 18% and totalled 236 for the month as the months of supply went up just 0.56% and now sits at 4.56. A semi-detached home’s average price for the month was $467,837.
230 attached properties were sold last month which is up 9% from last year. New listings totalled 581 which is up almost 10% and months of supply ended the month at 5, a 5.94% increase over last year. The average price went down 0.98% and now sits at $380, 465.
For apartments in January of 2018, 145 were sold which is down 3.97% from last year and there were 588 new properties listed, also down 5.77% from last year. Months of supply went up almost 6% and now sits at 8.89 and the average price is up 5.85%, now at $298,942.