More Changes to Mortgage Rules

Finance Minister Jim Flaherty has announced the fourth round of mortgage restrictions in four years.

Starting 18 days from now (July 9, 2012), those with less than 20% down payment will no longer be able to get a prime mortgage with:

- a 30-year amortization...the maximum will now be 25 years.

- a refinance to 85% LTV (LTV = Loan to Value ratio - basically the percentage of the value being borrowed)...the max will now be 80%.

In addition, the government will:

- Ban mortgage insurance on properties over $1 million - In other words, you may no longer purchase a property of $1MIL or more unless you have 20% down payment.


These rules are a “judgment call” says Flaherty. They’re meant to “lower risk” for taxpayers and curb excessive household debt, which is Canada’s biggest economic risk.

These are significant changes to Canada’s lending landscape.

May Market Watch Report- May Market Stays Strong, Interest Rates Stay Low

Strong Sales and Price Growth in May
TORONTO, June 5, 2012 –

Greater Toronto REALTORS® reported 10,850 transactions through the TorontoMLS system in May 2012 – an 11 per cent increase over the 9,766 sales in May 2011. Sales growth was strongest in the ‘905’ regions surrounding the City of Toronto.

“Sales growth in the ‘905’ area code was stronger than growth in the City of Toronto across all major home types. While lower average prices are certainly one factor that has contributed to this trend, recent polling also suggests that the City of Toronto’s land transfer tax has also prompted many households to look outside of the City for their
ownership housing needs,” said Toronto Real Estate Board (TREB) President Richard Silver.

New listings were up substantially on a year-over-year basis in May – rising by more than 20 per cent to 19,177. The average price for May 2012 sales was $516,787, representing an annual increase of 6.5 per cent compared to $485,362 in May 2011. Price growth continued to be driven by the low-rise market segment.

“Strong competition between buyers seeking to purchase low-rise home types drove strong price growth in May. However, if new listings continue to grow at the pace they did in May for the remainder of 2012, the annual rate of price growth should begin to moderate on a sustained basis,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.

Jonathan's Opinion

We see here another month of increased sales and prices relative to last year. However, we also see increased listings. Increased listings mean more supply on the market, and more supply can lead to price reductions.

However, in order to have price reductions there has to be significantly higher levels of
supply (Sellers) and significantly lower levels of demand (Buyers). With the Bank of
Canada keeping the interest rate at an all-time low for the 14th time in a row, you can be sure that the level of demand will not decrease any time soon.

This means that the Toronto Real Estate Market will continue being active and will not see any form of correction in the near future.

Rates Stay Where They Are!

The Bank of Canada left the overnight rate unchanged at 1 per cent Tuesday, in the process suggesting a hike may not come anytime soon.


http://www.canadianrealestatemagazine.ca/index.php/news/item/1214-boc-rate-decision-holds-potential-downside


Jonathan's Opinion

I'm sure many people thught that interest rates would undoubtedly increase this year. I'm sure many thought they'd increase last year, or the year before.

As I've mentioned in my monthly blogs, it is easy for the Bank of Canada to say that rates HAVE to go up, but its very difficult, due to global turmoil (especially in the US), to actually increase them.

Rates will not go up this year, and I'd be surprised if they increase next year. To have a significant impact on inflation, rates must at least double...they will not double any time soon.

What this will do is keep an active real estate market. Prices will palteau at these all-time highs, or may even continue increasing marginally. As long as rates remain low, demand will not subside!

One thing I believe for sure, is that if our monetary policies remain the same as they have, a correction is not in the near future.