Dec
03

BIG. NEWS. (maybe). 10% down new minimums?

There has been a lot of speculation about a potential increase to down payment rules from 5% to 10%, especially with the Vancouver and Toronto housing markets continuing their incredible run.

Both Bloomberg and Canadian Mortgage Trends reported today these potential moves brought on by the Liberal Government. “As many as 115,000 buyers across Canada may not afford a 10% down payment”. There is also talk of a sliding scale policy where the 5% down payment would still work for homes under $500,000, 7% being required for $500,001 and $700,000, and 10% on anything over $700,000.

The worst part? If this is to happen expect it to happen fast, without warning, and potentially without much heads up.

The second worst part? This would cause huge damage to a very weak market outside of Toronto and Vancouver as is evident by the charts below. Our prices are way up, the rest of the country has faltered. Same with our sales, and conversely our inventory is very low, while listings are at a record across the board everywhere else.

If you are a 5% down buyer you’ll want to step up you game or risk being completely priced out. NOT because prices will necessarily rise but because the down payment will.

If you are a sellers of a home in these price ranges you should sit down with your Realtor and speak about the potential impacts these changes may bring to demand of your homes.

If you have questions please let me know and I will, of course, pass on the information as I get it.

As with the six previous mortgage rule changes AND the Toronto Land Transfer Tax, and considering my experience of approximately 200 closings per year, I do not think this will impact that many people but it certainly will impact the first-time buyer market the most. Who will get hit hardest is the one that has been sitting on the sidelines, barely able to increase their down payment via savings because the city is so expensive to live in where the rent is too damn high, and now will face an even longer uphill battle to enter the market.

This will also positively impact condos which is funny because this is/was the number one concern amongst talking heads through the past couple of years. Why? Those buyers seeking homes will now focus on $500K and under condos.

This will also keep helping the “shadow lenders” aka the private lenders out there that are making money hand-over-fist by going to 80-95% on second mortgages right now. This will also further increase HELOC usage amongst parents once the kids are short of the down payment, they’ll ask the Bank of Mom and Dad for a loan from the HELOC.

What I think they should do is also let REAL first-time buyers keep their 5% card in the pocket just the one time. Not “Canada Revenue Agency” first time buyers - where if you sell a home +5 years ago you’re a first-time buyer again, but people who have never been on title anywhere before, period.

So much craziness surrounding this potential move!

Not the happiest of news if you ask me, but nothing I’m surprised about. If the market can’t control itself, then the Government will. Then again, Sweden also has an insane housing market and they have a minimum 20% down payment rule and guess what? nothing has changed there. I don’t think we’ll have the same effect since our economy is tied to oil, our economy hasn’t rebounded the way we’d like, and our market isn’t like Sweden (a very small geographic country in relation to here). It’s just interesting to see what has happened in other markets.

This news coupled with rising rates which we have seen across the board should cool things off. I’ve always been a fan of letting the market take its course with minor interaction from the Government.

Thanks for reading!

Posted in: News