The driving factors that contribute greatly to the growth and resilience of the Canadian real estate markets are yet to be impacted by the recently pronounced adjustments made on the federal mortgage rules, as warned by the country’s real estate critics. Canadian consumers now have a reason to keep an eye on the regulatory changes.
Macbeth wrote; “The amendments to the rules could stimulate a systematic transition to a more stable system and a soft landing for house prices. On the other hand, while on tenterhooks for the best, Canadians would be wise to prepare for something worse than the oft-touted transition to stability. A painful undoing of elevated influence in the Canadian financial system is the most probable outcome, based on observation of akin adjustments in the U.S., Ireland, and Spain.”
The manufacturing, residential real estate sector and energy segment are all playing a colossal role positively towards the country’s GDP, any unexpected changes will be a huge blow to these three components. An analyst said; “Any serious effort to change the rules around insured mortgages could agitate share prices of publicly-listed Canadian lenders as well as disrupt financing for housing. The accessibility of mortgage credit could dry up and conditions would be much more difficult for many buyers.”
The mainstream consumers will be affected by the obligation to have insured mortgages tested against the main banks’ 5-year posted rate of 4.64%. Before this was made public, the rate for one to be eligible was just at 2.17%. Macbeth warned; “For a household with $100,000 in total income, the stress test could mean a 20% drop in ratified mortgage value. The Bank of Canada projected that more than 20% of all insured mortgages were contracted by households that have loan-to-income ratios of more than 450%. 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 purchasing power will have a big impact, especially on new home builders in those centers.
J C Loum