The propelling factors that immensely contributes to the grown and buoyant activity in the Canadian real estate markets are yet to be greatly hit by the recently announced alterations and adjustments made on the federal mortgage rules, as warned by the country’s real estate critics. Canadians consumers are now given a reason to keep an open eye in light of the introduction of the regulatory changes.
Macbeth wrote; “[The] adjustments to the rules could engender an orderly transition to a more balanced system and a soft landing for house prices. But, while hoping for the best, Canadians would be wise to prepare for something worse than the oft-touted transition to stability. A painful unwinding of elevated leverage in the Canadian financial system is the most likely outcome, based on observation of similar adjustments in the U.S., Ireland, and Spain.”
The manufacturing, residential real estate sector, and energy segment are all playing a huge role positively towards the country’s GDP, any uncalled for changes will be a huge blow to this three components. An analyst said; “Any serious attempt to change the rules around insured mortgages could roil share prices of publicly-listed Canadian lenders as well as disrupt financing for housing. The availability of mortgage credit could dry up and conditions would be much more difficult for many buyers.”
The majority of consumers will be affected by the requirement to have insured mortgages tested against the main banks’ 5-year posted rate of 4.64 per cent. Before this was made public, the rate for one to be qualified was just at 2.17 per cent. Macbeth cautioned; “For a household with $100,000 in total income, the stress test could mean a 20 percent drop in approved mortgage value, The Bank of Canada estimated that more than 20 percent of all insured mortgages were contracted by households that have loan-to-income ratios of more than 450 percent. Home buyers in Vancouver, Toronto, Victoria, Calgary and Edmonton are at the head of this class of risky borrowers. The slowdown in new money from this second source of buying power will have a large impact, especially on new home builders in those centers.”