Canadian real estate has been a tough nut to crack for some homebuyers, but those have less than 20 per cent as a down payment are about to face another challenge as Canada Mortgage and Housing Corp. (CMHC) tightens the qualification rules for borrowers of high-ratio mortgages. This move is in response to the global pandemic that has left many Canadians vulnerable. The changes, which include lower debt thresholds and higher credit ratings, take effect on July 1, 2020.
New Mortgage Qualification Rules:
If you have less than 20 per cent to pay down, CMHC will now be:
- limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to its standard requirements of 35% (from 39%) and 42% (from 44%), respectively;
- establishing a minimum credit score of 680 (from 600 previously) for at least one borrower; and
- no longer treating non-traditional sources of down payment that increase indebtedness, as equity for insurance purposes.
What Is a High-Ratio Mortgage?
In order to buy Canadian real estate and qualify for a mortgage, buyers must have a minimum down payment of five per cent of the home’s total purchase price. However, when the homebuyer has less than 20 per cent to make as a down payment, they will need to take out a high-ratio mortgage, which requires mortgage default insurance. This is designed to protect the lender in case of mortgage payment default by the borrower. Insurance premiums can either be paid up front, or added to the mortgage payments.
Mortgage Changes & Canadian Real Estate
In the past, news of mortgage qualification changes have prompted a flurry of activity leading up to the deadline, as homebuyers tried to get in under the wire. This was the case before the OSFI mortgage stress test on high-ratio mortgages took effect in October 2016. The mortgage stress test was then expanded to all mortgages on January 1, 2018. Prior to these changes and others, transactions increased.
Leading up to the looming deadline, in November 2017 the Canadian Real Estate Association reported that national home sales in November 2017 were up 3.9 per cent month-over-month. Then in December 2017, Canadian real estate markets saw home sales surge 4.5 per cent month-over-month.
“National home sales in December were likely boosted by seasonal adjustment factors and a potential pull-forward of demand before new mortgage regulations came into effect this year,” Gregory Klump, CREA’s Chief Economist, noted in the Canadian Real Estate Association’s release. “It will be interesting to see if monthly sales activity continues to rise despite tighter mortgage regulations that took effect on January 1st.”
This time, however, RE/MAX did not anticipate a similar response from buyers.
CMHC is one of Canada’s mortgage insurers. CMHC’s two private-sector counterparts, Genworth Financial and Canada Guaranty Mortgage Insurance Co., have confirmed that they will not follow suit, meaning homebuyers with a down payment of less than 20-per-cent will still be able to get a mortgage at historically low interest rates.
“I think this time it’ll be a little bit less of a frenzy,” says Christopher Alexander, Executive Vice President and Regional Director, RE/MAX of Ontario-Atlantic Canada. “Typically, when CMHC changes their requirements, the other insurers follow suit. This time they didn’t, so I think this is going to create better balance heading into the summer.”
Low Housing Supply, Rising Prices in Canadian Housing Markets
“RE/MAX wholeheartedly supports responsible lending practices, such as CMHC’s most recent adjustments to mortgages, but this is a temporary solution to a bigger issue – not enough housing supply to meet demand,” says Alexander, who points out that major hubs such as Toronto, Vancouver and Montreal will continue to be challenged to keep pace with demand in the foreseeable future – particularly due to the fact that our government continues to attract and promote more and more immigration to help bolster the Canadian economy. “This is a great thing, but all of those people are going to need a place to live.”
Alexander has been vocal about the need for a national housing strategy to address problematic inventory levels and resulting rising prices.
“There’s a huge delta between [supply] and demand, and there’s no national housing strategy to alleviate some of that pressure.”
Alexander further said in an interview with BNN Bloomberg, “If we don’t find a long-term strategy that will bridge the gap between supply and demand, we are going to continue seeing price appreciation and continued affordability issues in the foreseeable future.”
B.C. Real Estate Association releases new rules for open houses – Globalnews.ca
It’s been a long tradition in the real estate industry: Showcasing a home for sale via an open house, where anyone could just walk in.
“In the pre-COVID days, open houses were often a form of Sunday afternoon entertainment,” said Darlene Hyde, CEO of the B.C. Real Estate Association (BCRCA).
“People would just go into a house to see what it looked like.”
Those days are now gone, at least for the foreseeable future, as modifications are underway keep everyone safe during the pandemic.
On Wednesday, the BCRCA released new rules for realtors holding open houses, which are now resuming after being on hold for the past four months.
“This will be safe for the public going through the open house, it will be safe for the occupants, it will be safe for the public and for the realtors,” Hyde told Global News.
The new protocols include limiting open-house attendees to serious buyers by leveraging technology tools and screening for qualifying consumers.
The new guidelines also encourage realtors to pre-register potential buyers before they attend the open house.
“The realtor community is going to a lot of extra lengths to make it safe, so there’s no point in having people on a property or in a place that don’t have to be there,” Hyde said.
Other guidelines include buyers having to wait outside for their turn if numerous people are wanting to go through a home and all parties involved wearing masks and maintaining their social distance inside.
Kelowna realtor Geoff Hayes welcomes the new rules.
“It’s kind of helping us keep the handle on the pandemic, but it’s also helping us do our job,” he told Global News.
Hays said for the past four months, realtors have had to rely on technology to market homes for sale.
“We’re using our phones, we’re going live on social media, Instagram, Facebook,” he said.
Toronto home prices rising, bidding wars declining
Many realtors have been holding virtual open houses, since traditional ones have not been taking place since mid-March.
“People, they typically want all eyes on their home, so it’s just been one of those things where . . . we had to explain, ‘Well the bad news is we can’t do them, but the good news is we can do them a different way,’” Hayes said.
Hyde said the pandemic has made it tough the last few months to market homes for sale.
“It has been extremely challenging and we have encouraged realtors to use virtual means whenever possible,” she said.
The New Reality: How COVID-19 could impact the commercial real estate market
Despite the new strict guidelines in the industry, Hyde said things are looking promising.
“The market is opening up, and in the Okanagan for example, sales rebounded in June. They are back to pre-COVID levels, so things are really looking good for the Okanagan.”
Hyde added that the supply of homes, however, remains low.
“It’s got to be putting a little bit of pressure on the price,” she said. “There’s a lot of uncertainty ahead but we are cautiously optimistic that the market will remain firm.”
© 2020 Global News, a division of Corus Entertainment Inc.
Victoria Real Estate Market Sees 9.2% Increase In June – Business Examiner
VICTORIA – A total of 808 properties sold in the Victoria Real Estate Board region this June, 9.2 per cent more than the 740 properties sold in June 2019 and 76.8 per cent more than the previous month of May 2020. Sales of condominiums were down 3.2 per cent from June 2019 with 209 units sold. Sales of single-family homes were up 16.8 per cent from June 2019 with 460 sold.
“This June we saw competing factors from all different sides of the real estate equation,” says Victoria Real Estate Board President Sandi-Jo Ayers. “If all we do is look at numbers, we see a fairly normal June, in the midst of a very not normal world. The impact of COVID-19 on our entire economy continues. And while some buyers and sellers are slow to emerge from isolation, others have been highly active since the start of Phase 2 of BC’s Restart Plan. Because of the pandemics, an eviction order that prohibited a landlord from ending a tenancy was introduced. The order may have kept some homes from going to market. The portion of this order that prevented a seller from providing vacant possession of a tenanted home was lifted late this month, which may bring some listings to market that had been stalled. Due to the pandemic alone, we have multiple factors influencing the inventory and sales in our market.”
There were 2,698 active listings for sale on the Victoria Real Estate Board Multiple Listing Service at the end of June 2020, 11.3 percent fewer properties than the total available at the end of June 2019 but a 6.1 per cent increase from the 2,544 active listings for sale at the end of May 2020.
“Additionally, the Canada Mortgage and Housing Corporation announced changes that start July 1 which will reduce the borrowing power of some buyers who insure through CMHC,” adds Ayers. “This may have pushed some demand forward – although there are alternate suppliers of mortgage insurance. Ongoing low inventory levels also mean that we are seeing a fair number of multiple offers. The condo market is slightly softer in terms of sales numbers. This may be in part due to the recent strata insurance issues which caused concern for owners and sellers. The government promised this month to begin to address the insurance issue, so there may be some relief on the horizon. These are not normal days for local real estate, nor is this month a signal of a return to normal, regardless of the numbers. That said, buyers and sellers are successfully navigating our market with the help of local realtors, who know how to implement health and safety protocols and understand the complexities of our current market. As always, I recommend you consult your Realtor to understand what is happening in the moment.”
The Multiple Listing Service Home Price Index benchmark value for a single-family home in the Victoria Core in June 2019 was $861,800. The benchmark value for the same home in June 2020 increased by 4 per cent to $896,200, 1.2 per cent more than May’s value of $885,400. The MLS HPI benchmark value for a condominium in the Victoria Core area in June 2019 was $519,100, while the benchmark value for the same condominium in June 2020 increased by 1.3 per cent to $525,600, 1.6 per cent less than the May value of $534,300.
Fraser Valley Real Estate Board says sales double in June, buyers returning to market – Abbotsford News
Real-estate sales in the Fraser Valley are back on the upward trajectory after COVID-19 slowed the growth of the market for several months.
The Fraser Valley Real Estate Board (FVREB) said they saw 1,718 sales through their multiple-listing service in June, an increase of 113.4 per cent over May’s sales, and an increase of 31.5 per cent over June of last year.
“We’re cautiously optimistic. June’s numbers clearly indicate that the market is functioning in this challenging new environment and we’re returning to more typical activity levels,” said Chris Shields, president of the board. “[Buyers] are getting more comfortable with the new buying and selling process.”
He said that very-low interest rates, high demand over the previous three months when “the market was on hold,” and new Canadian Mortgage and Housing Corporation rules (which came into effect July 1) are all contributing factors.
The board says they had 3,456 new property listings in June, a 56.6 per cent increase compared to May’s 2,207 listings, and a 23 per cent increase over June, 2019.
There were 7,063 active listings by the end of June, an increase of 9.4 per cent from May, but a decrease of 17.1 per cent last year, according to the board.
“We can’t predict how our market will continue to respond during COVID, but what we do know is that historically, over 80 per cent of Fraser Valley buyers move within our region and half purchase within their own community,” Shields said. “People buy and sell for lifestyle reasons and currently, even during this uncertain time, conditions are favourable. The market is balanced, inventory is growing, and prices remain stable.”
The month saw an average sell time of 37 days for the region’s apartments, 30 days for townhouses and 31 days for single-family detached homes, according to the board.
The region’s benchmark price for a single-family detached home was $994,500 (an increase of 3.6 per cent from 2019), $559,600 for townhouses (up 1.9 per cent from 2019) and $435,300 for an apartment (up 3.3 per cent from 2019).
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