Real Talk!

New Canadian mortgage rules take effect April 19. Finance Minister Jim Flaherty has announced tighter lending standards for mortgages a move he said was needed to “help prevent negative trends from developing.”

Recently, the Vanier institute announced that in 2009, household debt in Canada rose to record levels, with almost two-thirds of families reporting that they would be in financial trouble if their pay cheques were just one week late. Vanier found that the number of mortgage payments more than 90 days in arrears jumped 50% last year. Many economists argue that this figure has been seriously skewed by the Alberta housing boom.

It’s all about the people, not the houses. The Bank of Canada says, "In the Bank of Canada's view, it is premature to talk about a bubble in Canadian housing markets. Recent house price increases do not appear to be out of line with the underlying supply/demand fundamentals.”

The Canadian Association of Accredited Mortgage Professionals says, “The bottom line from the simulations is that even though mortgage payments will probably rise for most borrowers, the increases in incomes will more than offset the increased mortgage payments."

Scotia Capital tells us, “"We expect housing demand will remain strong through the key spring sales season as buyers attempt to pre-empt the inevitable rise in interest rates, and improving labour markets bolster confidence”

“There are no definitive signs of a housing bubble,” Mr. Flaherty said. “We think we're being proactive in the three steps we're taking today.”
In fact, many lenders have already been practicing the measures that have been outlined by Flaherty and it isn’t that much of a surprise. The three basic changes are as follows:

• Borrowers will need to meet qualifying standards for a five-year fixed rate mortgage (even if they opt for a lower rate and shorter term.) This is in order to prepared buyers for the inevitable interest hikes.

• The maximum Canadians can withdraw in refinancing mortgages will now be 90 per cent of the value of their property (currently 95 per cent).

• A minimum down payment of 20 per cent will be required for government-backed insurance on properties purchased on speculations (the owners do not intend to occupy the home).

We haven’t seen much speculative buying in a while, anyway... and there has been recent news that The Bank of Canada's pledge to keep interest rates at the current level will end by June 30th.

Overall, Canada's real estate market remains healthy and strong and the Canadian Real Estate Association predicts that the average price for a home will rise to $337,550 CAN this year, a 5.4% increase from 2009.