The news and media are making a big deal out of this new announcement by Canadian National Bank, implementing a mortgage stress test on real estate purchasers with no mortgage insurance (Mostly the ones paying over 20%) based on an additional 200 points of approval as of January 2018. This rule requires minimum qualifying rate for uninsured mortgages to be the greater of five years benchmark rate published by Bank of Canada. The media is hovering over its impact for first time buyers and the loss of affordability for a range of 20% in purchasing a real estate in Canada.
So what does that really mean?
Here is a model to understand it completely:
A) A family with $100,000 income and a 20% downpayment (Which bypasses mortgage insurance) at a five year fixed term and amortized of 25 years with mortgage rate of 2.83% currently can afford a house worth $726,939
With the new stress test effective January 2018, the same family they need to be qualified at 4.83% which now they can only afford $570,970 a loss of 21.45%
To understand if you're effected, it is important to discuss your financial updates with your mortgage specialist and the best route for getting the best rate. Sometimes by not getting the fixed rate, it can change the whole scenario.
Why they are implemented and supported at this time has a topic of its own and has many views such political, affordability and stability in real estate in Canada.
How does this impact real estate and its house and condo for sale?
As a local REALTOR® dealing with many real estate buyers at this time after this announcement, I found most buyers who felt the need of purchasing are putting a rush to settle prior to this effects. Based on this new mortgage "stress test" many real estate purchasers want to close and benefit from a lower rate and affording higher house values.
On the other hand, there are other buyers who feel, with this new rules in place, the housing market and its high prices, will take a tumble and the prices will dramatically decrease based on all media hypes.
I also am working with many financial institutions and local developers who bank their money on real estate. Based on their opinion, since there exists more demand in purchase based on the lack of inventory, lack of rental availability and the attraction of lifestyle, it can not be compared to other cities like Toronto for real estate purchase and investment.
I hear both logics and am preparing for every outcome to benefit my clients. The stats shows tremendous lack in inventory and that causes the scale to be tipped toward Sellers market. Also the challenge of finding a long-term rental also is distributing to this fact which pushes many investors to purchase any house style, whether house, condo or townhouse for sale with no rental restriction, and have a cash flow of rental investment.
Real estate had been a settled trend and based on the study of MLS®, it shows that every 10 years the house prices steadily increase and benefit its purchasers. There are multiple dips and drops in between, but at the end of its 10 year cycle, most real estate owners have observed increase in their property value specially in the most demanded map areas such as Vancouver west end and Downtown. Condominium and townhouses were not as popular, but as of 2014, this affordable investment, based on demand on rental, has increased in demand.
Want to know more on how you should prepare for the upcoming changes? Contact me direct and I'd be happy to help.