CALGARY - The same day federal Finance Minister Jim Flaherty announced mortgage changes that some economists said would cool the housing market, Calgary first-time homebuyer Conor Murphy was moving full steam ahead in seeking a home.
The 26-year-old and his wife, Katherine, have been looking for a house for the past couple of weeks and are in the process of getting a pre-approved mortgage. They are in the market for a house between $300,000 and $400,000, with a $50,000 down payment.
Murphy has no concerns about entering the local real estate market at this time, even with the recent talk of a housing bubble.
"I have been watching the market since October-November of last year and I'd say the average house price has come up in Calgary $10,000 to $15,000 in that time," said Murphy. "If that is a bubble or the start of a bubble, then I'm willing to eat that."
Flaherty tightened mortgage rules on Tuesday, saying he was taking steps to help prevent a housing bubble and stabilize the market.
For most consumers, the changes are unlikely to make it more difficult to get a mortgage, but they could reduce the size of the mortgage a consumer can negotiate with a lender.
Flaherty's changes apply to any mortgage backed by the federal Canada Mortgage and Housing Corp.
The change most likely to affect borrowers is a new credit test for any CMHC-backed mortgage.
Previously, a lender wanted to ensure that a borrower could make the monthly payments based on a three-year, fixed-rate mortgage. Now, lenders will want to see that a borrower can afford a five-year, fixed-rate mortgage -- even if the borrower plans to take out a mortgage with different terms that could result in lower monthly payments.
Flaherty also said those who wish to refinance their mortgages can borrow only up to 90 per cent of the assessed value of their home, down from 95 per cent. The intent is to prevent a homeowner from carrying a mortgage that is worth more than the home itself.
Investors will also have to put up 20 per cent of the purchase price instead of five per cent to get a government-backed mortgage to buy any property that is not the borrower's own residence.
In Calgary, the average MLS sale price for a single-family home was $441,217 in January, but according to the website of Mike Fotiou of First Place Realty, sales so far this month until Feb. 15 have averaged $457,487. In February 2009, the average was $415,568.
For the condo market, the average price so far this month is $284,039, up from $282,639 in January and an increase from $268,971 last February.
Flaherty has struck a good balance with the mortgage changes, said Todd Hirsch, senior economist with ATB Financial in Calgary.
"He was under a lot of pressure to not crush this economic recovery taking place right now," said Hirsch.
Extending the qualifying measure to a five-year, fixed-mortgage will make the conditions tighter for prospective homebuyers.
"It will eliminate a lot of people who are just those really marginal borrowers, first-time homebuyers who might be tempted to get into a situation that they're not going to be able to manage," added Hirsch.
Diane Scott, president of the Calgary Real Estate Board, said the changes won't affect new homebuyers much.
"I think the number of sales will stay steady. These changes won't affect that so much at all. The investors are going to have to come up with 20 per cent down now. That's OK. They were prepared for that before," she said.
Flaherty said he did not want to discourage Canadians from home ownership.
"On the other hand, we do want to discourage a tendency by some to use their homes as an ATM machine, the tendency by some to buy three and four condominiums, for example, by way of speculation," said Flaherty. "We have a healthy housing market in Canada but we want to keep it healthy."
In a commentary, Craig Alexander, senior vice-president and deputy chief economist at TD Bank Financial Group, said the regulatory policy changes are limited, but they will help cool the market.
"The announced changes are prudent," he said. "They will not dramatically impact housing, but they will help to cool the market, temper speculation and reduce the risk to personal finances from the inevitable future rise in interest rates."
The tighter rules on mortgage applications, he said, don't necessarily mean the affected individuals will not buy.
"They will simply have to limit the size of home they purchase," said Alexander.
mtoneguzzi@theherald.canwest.com---------
New Rules For Borrowers
Finance Minister Jim Flaherty announced restrictions Tuesday for any borrower who wants a mortgage backed by the Canada Mortgage and Housing Corp. Though the changes officially go into effect April 19, experts say lenders will likely put them into place immediately:
1. The maximum amount consumers can borrow to refinance their mortgages is being lowered to 90 per cent of the value of the home, down from 95 per cent.
2. All borrowers will have to be able to demonstrate that they could make the payments on a fiveyear, fixed-rate mortgage, even if they end up choosing a mortgage, such as a variable-rate mortgage, that would result in smaller monthly payments.
3. Anyone who wants a government-insured mortgage to buy a home that they will not live in will have to come up with a minimum down payment of 20 per cent, up from five per cent.
Source: Financial Post
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