Home > real-estate > Will Canadian real-estate slow down after March 18?

Will Canadian real-estate slow down after March 18?

I have spoken to a couple mortgage brokers and agents in the last week and:

Mortgage brokers are expecting reduced liquidity after March 18 which will affect first-time home buyers and pull demand forward…like last year’s implementation of HST.

There has been little in mainstream media regarding the proportion of mortgages with 35 year amortization…

RBC (via CMT)

30% of new mortgages were 35 year amortizations last year vs 8% of existing mortgages.

via CMT

As of November, 42% of new purchase financing over the prior 12 months had amortizations over 25 years. Two years ago it was 47%.

The bulk of those were 35-year amz but I don’t have the exact ratio or the breakdown by home price.

From a real-estate agent who works with 2 mortgage brokers

“90% of our deals were high ratio, and approximately 70% were both high ratio and 35yr amortization.”

Via another broker I spoke to on Saturday

95% of her first-time home buyers have chosen 35-yr amoritzations

Will this round of tightening be enough to slow down the real-estate market in Canada? Or is something radical like prohibiting real-estate agents from fostering false confidence (prices always go up), using scare tactics (not many homes in the market), creating bidding wars (this is the worst, because there is no transparency,  i would like to dedicate a post to this at some point)

open discussion… your thoughts?

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  1. Gary
    February 9, 2011 at 2:44 PM

    I have no doubts that there will be a pulled forward effect of a lot of buyers fearing that they will be “priced out of the market”. Moreover, it’s also an issue where if one real estate agent doesn’t use this tactic to drive their sales another will and potentially take their customer/commission. So we’ll have an emotional frenzy of buyers up until the last minute.

    In the short medium term after that we’ll probably see listings balloon to a very high number and then if there is no “panic” from speculators. I don’t expect much of a price drop off. If people take their houses off the market again like this fall/winter I suspect we’ll just see another sellers/buyer strike until we start normalizing to a lower price point. That’ might end up in the longer term but it will most definitely happen at some point within the next 3 years.

    • February 9, 2011 at 3:51 PM

      Gary,

      Thanks for shedding light on the sales tactic… I did not think of it from the agent’s perspective.

      I suspect sellers take their houses off the market because the agents advise them to and/or due to excessive fear-mongering in mainstream media in the past 6 months? Why in the next 3 years and not sooner or later? Is it because you expect interest rates at a more ‘normal’ level?

  2. Gary
    February 9, 2011 at 4:18 PM

    No problem, I really like your commentary as it sheds broad perspective on the current market conditions.

    Well, it’s my opinion that we’ve overshot the sustainable growth/demand scenario at rock bottom rates and now we’re about to see a correcting mechanism whether it be rising rates, sentiment, political it’s all pointing to credit contracting. With this being the first recession where Canadians went deeper into debt, it’s reasonable to expect for things to go the other way as the economy recovers in other sectors. Which will prevail in dictating the direction of the real estate market: recovering GDP or deflating credit? Well in the longer run I believe it’s the credit contraction that will win out because of how fractional lending works in reverse. That’s why I’m giving it 3 years out. However, I must say that real estate prices will probably not recover in real terms until 10 years later.

    And with all predictions/prognostications it comes with a caveat that assumes largely free market principles and omits black swans. If governments try to goose the markets with more credit again it could take longer than 3 years for this market to correct.

    • February 11, 2011 at 9:33 PM

      Gary,
      Thank you 🙂
      Please let me know if you have suggestions on how can I make them better…(content, topics, etc)

  3. February 11, 2011 at 1:49 PM

    T see the elimination of LOC insurance having a huge impact as anyone with a home has the ability to use LOC facilities where originations is a small % of annual purchases. Now the ability to take out equity at high values will become more difficult/expensive.

    We can go through a few highlight examples of how these new rules will measurably impact the market.

    Someone takes out 80% LTV mortgage with anticipation of tapping additional equity if major repairs are required. Assuming prices are flat, the LOC is no longer available to him; if he needs more $ it will have to be unsecured or through private MI at a higher premium.

    In markets where prices are falling, like Kelowna BC, it becomes even more pronounced. We will see situations where at renewal time a homeowner’s equity may have decreased below the limit to forgo MI. He cannot “kick the can down the road” by doing a 35 year refi: he’s stuck amortizing at 30 years or less, where before he could refi 35 years in perpetuity to keep payments low.

    Something to consider is that if prices do start falling, CMHC is going to start seeing a significant increase in applications of those who scraped together 20%+ DPs but find their equity situation compromised. That will start showing up to CMHC very quickly and cause a lot of consternation among its management and its dealings with the Dept. of Finance. How CMHC reacts to accepting more “sure loss” applications will be something to watch in the coming years.

  1. February 17, 2011 at 2:57 PM
  2. March 7, 2011 at 8:55 AM
  3. March 19, 2011 at 3:35 PM

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