Monday, February 6, 2017

2017 Real Estate Trends: Government Intervention In The Housing/Mortgage Market

Have you noticed your local real estate market seems to get more attention than it used to?  Whether it be an article in your local newspaper or a conversation at a local dinner party, real estate really seems to be a hot topic.  And why wouldn’t it be?  In many markets, housing prices are at all time highs, inventory is low, and bidding wars are commonplace.  The government and the governing bodies of the real estate market have surely taken note.  Today we are going to talk about some of the policies they have undertaken that could affect the market in 2017.

Foreign Buyer’s Tax
In Vancouver, the city has imposed a foreign buyer’s tax of 15% on foreign buyers of real estate.  This has happened due to complaints of foreign buyers being the majority factor in driving local housing prices into the stratosphere.  This tax has resulted in a slow down in foreign purchases and in the market overall.  Time will tell how these policies play out long term and if they will spread to other cities.

CMHC Increasing Mortgage Insurance Premiums
CMHC is once again increasing the mortgage insurance premiums on buyers with less than 20% down payments.  These increases will take effect in March 2017 and will add (marginally) to the monthly payments of borrowers, decreasing their initial equity in the property.  This type of policy adversely affects the first time home buyer who already has the odds stacked against them in high priced markets.

Government Stress Testing of Mortgage Rates
Last year, the federal government imposed new rules on mortgage qualifications for insured borrowers.  Essentially, any insured borrower must qualify for their mortgage at the banks posted rates.  For those of you that don’t know, posted rates are inflated mortgage interest rates that are advertised at the banks.  For example, at the current time in our market you can easily get a 5 year fixed mortgage rate at 2.5-2.6%, but the bank’s current posted rate is more in the 4.6-4.7% range.  So as a borrower, you need to qualify for your mortgage at the inflated 4.6-4.7% range, which all else equal, means you will qualify for significantly less house than you would’ve otherwise.  The government hopes to slow down the housing market by knocking some buyers out of the market, at least until they have 20%+ down to qualify for non-insured financing.  This policy again will hurt the first time home buyer more than anyone else.

Zoning Regulations Limiting Residential Development
As the first three items try to address the demand side of the housing market, zoning affects the supply of housing.  You can only lower the demand for so long.  As cities grow and expand, housing supply needs to keep pace to allow for a balanced housing market.  Many cities in Canada haven’t been able to add supply to keep up with demand and the supply side of the equation has been a large reason for the increasing prices in many markets.  Red tape, drawn out environmental studies, expensive soft costs for developers and investors have all had negative impacts on new housing development.  This has been spoken about by different levels of governments as an issue that needs to be addressed.  Here’s to hoping.

Those are some of the ways government intervention will affect the market in 2017.  Have any of these changes affected you?

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