Will the New Mortgage Rules Change our Real Estate Market?

As of this month there will be some important changes to the lending rules in Canada. It’s been all over the news and most people who are in the market are surely aware of these changes to the mortgage rules. The question is if these new lending rules will affect our local Real Estate market? First, I’ll detail some of the changes to our current mortgage lending system.

1) Even if a buyer chooses to have a lower variable rate when buying a home, they’ll now be required to qualify for the higher fixed five year posted rate.

2) If refinancing and withdrawing funds from your home – the maximum withdrawal will be 90% of the value of or home, down from 95% previously.

3) Now when buying an investment property, a 20% down-payment is required. Under the previous rules, buyers were able to purchase investment homes with as little as 5% down-payment.

These might seem like small, insignificant changes to the rules but that might not be the case. As a Vancouver Realtor I do see how many people are maxing out their mortgages when purchasing a new home. Let’s face it, Vancouver is an expensive city and based on the income of most people they can barely afford something far less than their dream home.

These new mortgage rules will greatly reduce the size of the mortgage a lot of people can afford or make it more difficult to purchase a second home for investment. Under these new rules we will likely see a lot of buyers decide not to invest in Real Estate if they’re unable to afford a home with the features they need. After taking a good look at the new rules coming into play I feel there will be a slow-down in the Vancouver housing market.

There are a number of factors why I feel these changes will have a major affect on our home sales. With a slow-down in new construction post Olympics and less developers building new high-rise towers, trades people, product suppliers and all the spin-off business will be lost. A lot of jobs will be lost and related industry will slowdown. In a many ways this flow of funds finds it’s way back into the real estate industry. Secondly, we’re seeing interest rates slowly creep up which will lower the affordability when buying. We’ve had extremely low interest rates in the last number of years and now they’re going up. Lastly, we have the new mortgage rules taking affect.

This year has started off extremely busy but I believe we’re going to see a sluggish second-half of the year. There will be a large number of properties for sale and that will have some downward pressure on prices. Is all this such a bad thing? I don’t really think so, less people will be maxed out and extended beyond there means. Our real estate market has been so hot prices haven’t stopped going up (besides the short-lived drop in 2008). Maybe this is what our housing market needs to continue to be healthy, time to cool off.

Now is going to be a good time for sellers to move their properties and once the market is flooded with listings prices will drop slightly. With slightly lower prices and an abundance of properties to choose from we’ll see a new wave of buyers jumping into the market.