January is the time for resolutions, and for many people, one of those resolutions is getting a mortgage and buying a house. But if you’ve been keeping abreast of the recent changes in the mortgage industry or even casually following economic forecasts, then the prospect of 2017 may have you a little wary.
Assessing your personal situation
Only about half of Canadians think that this this is a good time to buy a home or a condominium in their community, according to a survey that was part of the latest Annual State of the Residential Mortgage Market in Canada.
“The fall 2016 responses to this question have been contrasted with consumer opinions on how the new mortgage insurance rules would affect their ability to buy a home or condominium. There is a clear relationship, as those who expect negative personal impacts from the policy are much less confident about the housing market. People who expect a neutral or a positive impact from the policy have increasingly positive attitudes about whether it is a good time to buy,” writes economist Will Dunning in the report.
And that makes sense – Ottawa tightened mortgage rules in October, including requiring that all insured mortgages undergo a stress test to determine whether borrowers are still able to make mortgage payments if circumstances change, such as interest rates rising or incomes declining. Such tests were previously not required for fixed-rate mortgages longer than five years. If you have a high enough income that the stress test won’t bother you, or are planning to buy a home that’s inexpensive relative to your income, then you’re going to go ahead with your plans as usual. In this case, you’re also probably an ideal borrower and able to go to the more high-profile lenders for a good rate, and so aren’t affected by the higher cost of mortgages that non-bank lenders may be forced to pass on to their customers.
If, however, you’re worried about the new regulations forcing you to stretch yourself more than you feel comfortable doing, then now may not be the best time for you to buy a home. As always, it’s a very individual process, and you can’t look at any rule in a vacuum; you have to weigh how much it affects your wallet and lifestyle.
“There is a reduction in what people are able to qualify for, which I think has put some people into a position of waiting and waiting until house prices come down, but then conversely, rates have started to go up, so the longer you wait, are you going to be able to – even if the price goes down and you’ve got a higher interest rate – are you still going to be able to qualify for what you were six months or even a year ago?” asks Peter Fairhead, mortgage manager of The Mortgage Girl in Edmonton, speaking on behalf of mortgage broker Jackie Woodward.
“There’s a general feeling that we’re going to see a better 2017 than we did in 2016 for movement of houses. That doesn’t necessarily mean that it’s going to be good market for condos or high-end houses, but kind of the mid-range houses – say, the $350-500 thousand – is what we’re seeing,” says Fairhead.
People who are choosing to wait are doing to for different reasons. Of those surveyed for the MPC report, 28 per cent of people who are choosing to wait to buy a home are because they want more time to save a down payment. 24 per cent don’t feel as if they’re financially stable, and 20 per cent are waiting for home prices to drop. Only seven per cent of those waiting to buy a home are concerned about interest rates rising. But 30 per cent say that renting is a better option for them at the current time, and 31 per cent say that they’re comfortable in their current situation, whether that be renting, living with family/friends, or another arrangement.
Assessing external factors
When it comes to looking for positive signs from the housing market to give you the push you need to take the home buying plunge, it becomes a little more difficult.
The Canadian Real Estate Association doesn’t think that home sales are going to be as big of a factor in powering the economy in 2017 as it was in 2016, when the real estate industry accounted for about 12 per cent of Canada’s GDP, according to Statistics Canada.
“New regulations mean that in order to qualify for a mortgage, homebuyers will either have to save longer for a bigger down payment or purchase a lower priced home,” said Gregory Klump, the chief economist for CREA, said in a statement. “In urban centres where the latter are in short supply, that's likely to translate into fewer sales.”
Although the new federal mortgage rules went into effect in October, it does often take a few months before the impact is fully seen and is able to be measured and translated into hard data. This is also true because the new rules didn’t apply to those home buyers who had been pre-approved for a mortgage before the rules had been announced and enforced.
The number of home sales nationwide dropped dramatically from October to November but rose 2.2 per cent from November to December, although home sales were down five per cent on a year-over-year basis compared to December 2015. Annually, the number of homes that changed hands was up 6.3 per cent last year compared with 2015, as sales started out strong before softening. The MLS home price index in December 2016 was up 14.3 per cent compared with December 2015, while the national average sale price climbed 3.5 per cent year-over-year. Supply continued to tighten, with new listings down in more than half of all local markets. The number of homes newly listed for sale slipped three per cent from November to December, with B.C.’s Lower Mainland, Calgary and the Greater Toronto Area seeing the biggest declines.
But before you get too carried away with the data and predictions for the coming year, remember that it’s all about context. While the information on home sales throughout Canada is useful for seeing the relationship between housing and the economy, when deciding whether or not it’s a right time for you to buy a home, it’s more important to look at factors that determine why your particular housing market is or isn’t doing well ( for example: local industry, labour statistics, the number of available listings in your area, and how long homes stay on the market). Toronto and Vancouver have dominated the mortgage and real estate conversations as of late, but most other housing markets in the country have remained relatively stable and haven’t suffered the same affordability issues for residents.
Fairhead cautions that even if you want to go ahead with your plans to get a mortgage, people should abandon the idea that they’re going to get the same interest rates and details received by friends and family members. The most successful borrowers are ones who understand that everything is on a case-by-case basis.
“It really is, ‘Tell me what I can afford,’” he says. “[Buyers] kind of have an idea of what they’d like, but every situation is different.”
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