This week marks a month since the federal government’s new mortgage regulations came into effect. The arrival of the new rules coincides with one of the biggest downturns in market activity in a decade.
Sales in the region were down 31 per cent from the 10-year July average and the downturn produced the lowest number of sales since 2000, according to Real Estate Board of Greater Vancouver monthly statistics.
The real estate board reports that sales in Greater Vancouver were down 11 per cent from July 2011 – with 2,098 sales this July compared with 2,571 for the same month last year.
New listings are also down almost six per cent from July 2011 while this July marked the quietest month this year for new listings.
And while housing markets traditionally slow down when the weather heats up, the new regulations are being seen as a potential reason some buyers are staying away this August.
“People appear to be cautious about making significant financial decisions right now,” real estate board president Eugen Klein stated in a release.
“While our local economy appears to be quite robust, there may be some concern about the impact of international markets and the federal government’s tightening of mortgage regulations.”
Under the new rules, which came into effect July 9, buyers applying for government-backed mortgages with less than 20 per cent down can only have a maximum amortization period of 25 years, down from 30 years. That means monthly payments on three- to four-per-cent mortgages could increase as much as 12 per cent, to an average increase of about $250 a month.
Anyone hoping for a government-insured mortgage for more than $1 million must slap down at least 20 per cent on their mortgage.
Other new rules include lowering the maximum amount borrowers can refinance to 80 per cent, down from 85 per cent. As well, the total debt-service ratio is now limited to 39 per cent of household income.
Some local lenders have noticed the summer slump and did their best to get clients into new homes before the new rules went into effect.
“For sure, it will have an effect on some people,” said Yvonne Vanderkooi of Maple Ridge’s ARMADA Mortgage Services.
“Right now it’s a little quiet. We did our best to get as many people through before the changes.”
While the changes will make an impact immediately on homeowners’ pocketbooks, the changes will also help buyers build up equity quicker because they will pay less in interest payments in the long run.
Financial institutions have warned that Canadians need to watch their debt ratio and the government is determined to get people to use their homes as a way of to create some savings by demanding stricter rules.
“They are making Canadians save through their homes,” she said.
Vanderkooi also sees some good news in the latest from Finance Minister Jim Flaherty, who announced this week that he won’t go ahead with any of his other proposed changes to mortgage regulations. Those included increasing the minimum allowable down payment a couple of percentage points from the existing five per cent for homes under $1 million, or tinkering with line of credit rules for home buyers.
“This is a real relief,” she said. “We’re all still getting used to the revision we’ve just had. Increasing the down payment needed would make it even harder for buyers to get into the market.”