New mort­gage rules could de­press hous­ing de­mand by an­other 10%: TD

The Miracle - - National & Int -

De­mand for hous­ing could be cut any­where from five to 10 per cent be­cause of tougher qual­i­fi­ca­tion rules be­ing con­sid­ered by Ot­tawa, ac­cord­ing to a re­port by Toronto-Do­min­ion Bank out Mon­day. The re­port from Beata Caranci, chief econ­o­mist with the bank and Diana Pe­tra­mala, also an econ­o­mist, takes aim at a pro­posal from the Of­fice of the Su­per­in­ten­dent of Fi­nan­cial In­sti­tu­tions. The fed­eral bank­ing reg­u­la­tor is look­ing to crack down on non-in­sured mort­gages – im­pact­ing peo­ple with at least 20 per cent down – by mak­ing those con­sumers qual­ify based on a rate 200 ba­sis points above what is on their con­tract. “Gov­ern­ment pol­i­cy­mak­ers are not done yet with reg­u­la­tory changes on the mort­gage mar­ket,” the pair wrote in their 13-page re­port, not­ing in­come test­ing is cur­rently used for high-ra­tio mort­gage loans backed by Ot­tawa. “In the year of im­ple­men­ta­tion, we es­ti­mate that this new rule could de­press de­mand by 5% to 10%, and shave 2% to 4% off of our cur­rent fore­cast for the av­er­age price level in 2018,” the au­thors said, as the pro­posed mea­sures will act as an­other force that lim­its price growth in the fu­ture. Those con­sumers, who of­ten have as lit­tle as five per cent down, must qual­ify based on the posted five-year rate of the Bank of Canada, which is cur­rently 4.84 per cent. The econ­o­mists sug­gest changes to tighten the rules on non-in­sured mort­gages will lead buy­ers to “come up with a big­ger down pay­ment, opt for a lower priced home and scale back other debt,” and may even de­lay pur­chases all to­gether. As part of the re­port “Nav­i­gat­ing a Soft Land­ing”, the econ­o­mists looked at the “un­prece­dented” num­ber of pol­icy changes over the past 18 months. Other key changes im­ple­mented by Ot­tawa in­cluded in­creas­ing the min­i­mum down pay­ment on homes worth more than $500,000 and re­duc­ing port­fo­lio in­sur­ance, a pro­gram that al­lowed fi­nan­cial in­sti­tu­tions to se­cu­ri­tize loans they deemed risky, but not legally re­quired to be in­sured. “Each suc­ces­sive reg­u­la­tion change at the fed­eral level has left a smaller mark on home buy­ing ac­tiv­ity,” the econ­o­mists wrote, not­ing the most re­cent changes from Ot­tawa dur­ing that 18-month pe­riod may have only shaved two per cent off of de­mand. Pre­vi­ous changes, be­yond the ones OSFI is cur­rently con­sid­er­ing which the real es­tate in­dus­try has asked Ot­tawa to put on hold, have been aimed at the in­sured mar­ket. The prob­lem is new loans that re­quire mort­gage in­sur­ance are less than 20 per cent of all new char­tered bank mort­gage orig­i­na­tions, down from 40 per cent in 2008. Re­cent rule changes im­pact the in­sured mar­ket but it is in­creas­ingly a smaller part of the over­all mar­ket. It is pro­vin­cial changes that are hav­ing more of an im­pact on the hous­ing mar­ket ac­cord­ing to the TD econ­o­mists, point­ing to a 15 per cent tax im­ple­mented on for­eign buy­ers in the Van­cou­ver and Toronto area mar­kets by their re­spec­tive pro­vin­cial gov­ern­ments. Van­cou­ver has bounced back some­what, and while the pair down­played the im­pact of for­eign buy­ers in Toronto, they said “do­mes­tic spec­u­la­tion” was a key fac­tor. While buy­ers may be hop­ing ris­ing in­ter­est rates could trig­ger a crash, those first-time buy­ers “may be hold­ing their breath for a while” be­cause prices are likely only go­ing to re­set back to the lev­els of where they were be­fore a year of ex­or­bi­tant gains, the re­port con­cludes. “List­ings shot up in the GTA fol­low­ing the pol­icy mea­sures not be­cause home­own­ers sud­denly be­came in­ca­pable of af­ford­ing their homes but be­cause spec­u­la­tive ac­tiv­ity is be­ing squeezed out,” they wrote. The econ­o­mists said soft land­ings can hap­pen and main­tain Van­cou­ver is the “poster­child” as, since 1990, the city has had five cy­cles where prices ran up any­where from 15 to 20 per cent and cor­rected shortly after­ward by 10 to 14 per cent. In the GTA, they ex­pect the cur­rent pull­back in prices to be sharp and short with lev­els re­turn­ing to where they were in mid-to-late 2016, not­ing av­er­age prices are down about 13 per cent from their peak. They ex­pected an­other six per cent in price de­clines in 2018 in Toronto. Source: Van­cou­ver Sun

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