‘Not a game changer’

Ottawa’s move could boost home purchases in short run as buyers try to beat the Feb. 15 deadline

New mortgage rules won’t cool red-hot market,

Ottawa has unveiled its most targeted effort yet to try to cool the country’s hottest real estate markets — Toronto and Vancouver — but any temperature drop is likely to be insignificant, according to housing experts.

In fact, the announcement Friday that higher down payments will be required as of Feb. 15 on governmentinsured mortgages between $500,000 and $1million is more likely to fuel a rush of buyers before the increased costs kick in.

“Raising down payments sounds dramatic — they have always been untouchable until now. But we’re talking about a very, very small part of the overall market that will be affected,” says Benjamin Tal, deputy chief economist at CIBC World Markets.

“This is not a game changer. (Federal Finance Minister Bill Morneau) is really just trying to do something at the margins, without destabilizing the whole Canadian housing market.”

In his first official effort to take over where the Conservatives left off, trying to ease double-digit price gains in Toronto and Vancouver and reduce the risks of a housing downturn, Morneau has targeted the most financially extended house hunters — largely first-time buyers of homes between $500,000 and $1 million, unable to come up with the usual 20-per-cent down payments.

In the past, those buyers have been able to put down as little as 5 per cent, as long as they had pricey insurance from the Canada Mortgage and Housing Corporation (CMHC).

A 5-per-cent minimum down payment will still be allowed for insured mortgages under $500,000, so as to not further hurt cooling markets in most of the rest of Canada, where the average house price is now about $453,000. But down payments will increase as of February from 5 to 10 per cent on the portion of any new, insured mortgages above $500,000. And they will be graduated up the million-dollar-mark, the ceiling for getting CMHC insurance.

The changes are clearly targeted at pricier purchases in Toronto, where the average detached house in the city now sells for more than $1 million, and Vancouver, where a detached is well over $1.5 million. But Tal estimates that just 3.9 per cent of homebuyers will be impacted by the new down payment rules — about 5 per cent in Toronto and just 2.5 per cent in Vancouver. Although Vancouver has the highest house prices, fewer buyers tend to rely on insured, high-ratio mortgages, which may reflect the higher number of cash-rich foreign and move-up buyers.

Tal worries that Calgary, where sales and prices have already been slumping in the wake of dropping oil prices, could be hardest hit. He estimates about 10 per cent of first-time buyers could be affected there because the city tends to have more high-ratio buyers than other parts of the country.

Within minutes of the announcement, Toronto mortgage broker Steve Garganis was seeing a noticeable pickup in calls from concerned clients.

“This is just political posturing, but it did raise peoples’ eyebrows. I had clients asking, ‘What does this mean for me?’ “It’s going to impact a very, very small minority of buyers, but the really adverse effect will be that we will see a bit of a spike in buyers (between now and February ), which is just what we don’t need in Toronto right now.”

Realtor David Fleming predicts the new rules will simply fuel more competition for condos and those rare houses under $500,000 among firsttime buyers determined to break into the booming market before they are locked out forever. It will also just force them to alternative sources, like the bank of mom and dad, to come up with the extra money.

“I understand what the government is trying to accomplish, but all it’s doing is taking demand from one column and shifting it to another.” Real estate giant ReMax had been predicting that price growth should slow in Toronto next year to 5 per cent and expects Ottawa’s announcement to do little to change that, says Ontario-Atlantic region executive vice-president Gurinder Sandhu.

“Part of what the government’s trying to do is promote stability, but it wasn’t required in this case. The market is stabilizing on its own.”