Tuesday, October 31, 2017

Are you Fit for a Mortgage?




What the heck is a Stress Test? Why Should I care?
Starting next year, it will become tougher to qualify for a mortgage.  Earlier this month, Canada’s banking regulator published final guidelines for its mortgage qualification rules.  For some reason it hasn’t gotten as much coverage as other news items, such interest rate hikes or Amazon HQ2.  But it should have because it has serious potential repercussions for the real estate market and the economy.  Today we are going to discuss what you need to know.

Who is making this change?
Canada’s banking regulator, the OSFI (Office of the Superintendent of Financial Institutions).  The OSFI is responsible for supervising and regulating Canada’s financial institutions.

When do the changes come into effect?
January 1, 2018.

What changes are they making to the regulations?
They are tightening standards on uninsured mortgages (mortgages where the borrower is putting down 20% or more of a down payment on the purchase price).  Lenders will soon be required to “stress test” all uninsured mortgages at the greater of: the Bank of Canada’s five year posted interest rate or 200 basis points (2%) higher than the negotiated contract interest rate.

Can you give an example of how this would work?
Let’s say you are looking to purchase a house and are shopping to line up mortgage financing.  Your realtor tells you to go get pre-approved so you understand what price range you can afford.  Your lender offers you a 5 year fixed interest rate of 3.19% (which would be competitive as of the writing of this blog).  Before this change, you were able to qualify at this fixed rate with your lender and based on your ratios you were able to qualify up to a maximum price range.  After the change, you will now have to qualify at the higher of: 4.99% (the bank of Canada’s posted rate as of writing) or 200 basis points higher than the contract rate (3.19% +2.00%) or 5.19%.  In this case you would use 5.19% to qualify.  Naturally with the higher interest rate your ratios would change and your affordability will drop – you won't be able to qualify for as much house!

How will this affect the market?
This will knock some buyers completely out of the market in some higher priced areas and will drop other buyers into lower prices ranges when shopping for a home.  This should increase competition for starter type homes and decrease the pool of buyers in larger and pricier homes.  Other people will be forced to put up a higher down payment (thanks Mom and Dad).  This will also increase rental demand in most markets.

Why are they making this change?
The main reason is to slow down the runaway housing market many cities in Canada have experienced in the last 7-8 years.  The regulator is also concerned about the indebtedness of the population and their ability to handle potential rising interest rates.  This should reign in the mortgage segment at least.

What else should I know?
This applies to you if you are renewing your mortgage as well.  The only time it doesn’t is if you are renewing and staying at the same lender.  But if you decide to switch, you’ll also have to qualify with this new stress test.  It is a bit concerning that some people will be forced to stay with their existing lenders because of this and knowing the borrowers predicament, the lender will not be very generous in their renewal terms.


Of all the changing regulations the government has thrown at the housing market in the last few years, this one has the most potential to really shake things up.  It remains to be seen how the market will respond but it will be interesting to see!  What do you think of these stress tests?  Will they affect your plans in 2018?  We’d love to hear from you.

Thursday, October 19, 2017

Real Estate Insider: October 2017 News Report


Did your equity in your home spike in the past few months due to the increase in property values? Use it to make your wealth grow! Read this to learn the basics such as how, when, and why. >>

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If you have multiple rental properties, this article is for you! Learn the pros and cons of opening up a holding company. >>

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Planning your estate or have you recently gotten a large inheritance? Here’s what you should know about estate and inheritance tax in Canada. >>

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Are you self-employed or a new Canadian? CMHC proposal will make it easier for you to buy a home by getting rid of a lot of the ‘red tape’. Read more here >>

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Read the top 9 things this experienced couple looks for when buying a rental property, and what they wish they knew when they first started. >>

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These few little known facts could save you tons of money on capital gains tax when selling your rental property. >>

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Inheritance can be tricky, especially when it isn’t divided equally or fairly. Read this man's conundrum when his Mother left him everything and his brothers were left empty handed. >>




Friday, October 6, 2017

Has The Local Real Estate Market Cooled Off?


It's hard to tell from the unseasonably warm weather, but we are a couple weeks into the fall season. The autumn real estate market is well under way and even if the weather hasn’t cooled off yet, our local real estate market (Windsor, Ontario) is certainly feeling a drop in temperature. Today we are going to discuss a few of the factors that have led to this cooling.

Sellers Have Adjusted Their Prices Upwards
This makes a lot of sense. We had a pretty crazy first 8 months of the year. Multiple offers were everywhere, properties were selling considerably over list price and it was a great time to be a seller.  As this continued, the market adjusted and realtors and sellers began to adjust their prices to these new comps. As prices increased, demand levelled out to a more balanced market place.

Interest Rates Were Raised A Couple Times
The Bank of Canada (BOC) has now increased the benchmark interest rate two times this year, for a total of 50 bps (0.5%). Although this is a minor increase, it has affected affordability and how much house a buyer can qualify for.  The BOC seems to be indicating that they are also planning further hikes into 2018. This has led to a modest softening in demand.

Trickle Down From The Toronto Market
After a series of measures introduced earlier this year to slow the housing market, the government seems to be finally succeeding. Sales are way down, prices are stalling and deals signed in the spring are running into snags at closing. A large segment of the demand in our market was coming from Toronto buyers who were relocating and/or investing in our market. Suddenly, properties that used to sell in a few days are sitting on the market for a couple months. Because of these developments, this pool of buyers has seemed to slow and put a dent in demand.

General Uncertainty
There seems to be lots of bad headlines out there right now: the Liberals are planning to change the taxation of professional corporations; anything Trump related; the US, Canada & Mexico are renegotiating NAFTA; North Korea’s nuclear program; hurricanes causing havoc; flooding (which we experienced locally); and terrorist attacks. Uncertainty is never good for markets. Markets operate on confidence, which is sometimes a fragile thing. It's difficult to quantify how much confidence is shaken by these types of events, but combined with the above factors, it probably has some impact on demand.


Sometimes it's hard to figure out cause and effect in markets but those are some of the factors we see cooling our local market. What are your thoughts on this subject? We’d love to hear from you.