Tighter mortgage rules may impact housing

Federal Finance Minister Jim Flaherty’s move to tighten up the mortgage market may cause Canadian house prices to slip by an additional 1 per cent in 2011, says TD Bank.

The bank is already calling for home sales to drop by about 8 per cent this year compared with 2010.

But mortgage restrictions introduced Monday will mean about 20,000 fewer sales this year, with the average price possibly weakening by 1 percentage point, said senior economist Pascal Gauthier.
The mortgage changes have met with general acclaim from bankers and real estate industry executives.
Though they say the tighter regulations may prompt some Canadians to purchase homes before March 18 when the new rules go into effect, most in the industry feel they are prudent measures that will help create long-term stability.
Key points include:

• A reduction to the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent.
• Lowered the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes.
• While this move will help to cool the housing market, it also allows government to leave interest rates where they are,
• The Bank of Canada is expected to stay put on its key overnight rate when it meets on Tuesday.

Real estate insiders had been worried the government would also raise down payment requirements. Currently, buyers can purchase a home with 5 per cent down. Some analysts had worried that the minimum would be raised to 10 per cent.
“That would have had a dramatic effect on the market,” said Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals. “It’s really a fine balance between addressing debt levels and not affecting the overall economic contributions made by the housing market.”
A report last year by the association said about 22 per cent of Canada’s trillion-dollar mortgage market consists of amortization periods longer than 25 years. Longer amortizations have been popular with consumers because of the lower monthly payments.