New mortgage rules should have been introduced gradually - economist

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The revisions to mortgage rules announced last week would have better served the Canadian housing sector by being implemented in small stages, not as a sudden regulatory upheaval.
 
B.C. Real Estate Association chief economist Cameron Muir noted that the new measures introduced by Finance Minister Bill Morneau last week would—instead of cooling the markets as intended—drive off would-be buyers and slow down construction, CBC News reported.
 
“Introducing these measures as a single measure, a one-time shock to the economy, doesn't seem to help affordability,” Muir cautioned.
 
The economist added that the mortgage market’s dynamism would be hit hard as potential buyers would be forced to stay in their current residences. Supply would thus be scarce by the time millennials have saved up enough to offset the larger down payments.
 
The prediction echoed that of Addenda Capital Inc. co-chief investment officer Jean-Francois Pepin, who warned last week that contrary to the expectations of lowered home prices as a result of the new rules, mortgage origination itself might be cooled down by the regulatory changes.
 
“If it slows down the housing market, it’s going to slow down the quantity of mortgages that will end up being on banks’ books, which means there’s a smaller pool that’s available to be securitized,” Pepin said in an interview.
 
The stricter rules—which would take effect on October 17—would mandate a more stringent “stress test” for first-time buyers who have CMHC-insured mortgages, evaluating their ability to repay under the big banks’ posted five-year rate.

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  • Tomas on 2016-10-11 9:44:43 AM

    I guess prices can't come down?

  • LanceH on 2016-10-11 10:20:27 AM

    Tomas. It might drive down prices outside of the GTA, but the GTA has such a shortage of ppty's it will only reduce the number of bidders. Writing a policy for the entire country to cool one region, is out of whack!

  • LanceH on 2016-10-11 10:25:14 AM

    If one wants to write something thoughtful to Morneau, here's his email; bill.morneau@canada.ca. Here's what I wrote;

    Hi Bill

    Unintended consequences?

    If the stress test you're implementing isn't permanent - what happens? What's the chances that it gets switched back at some point in the future by yourself or another government? I think the chances are rather high.

    What will happen is a mass rush from the pent-up demand you created with this policy. With all those millennials scrambling to finally buy, their will be a shortage of ppty's culminating in bidding wars and mass price increases. Right back where you started!

    The prospects of interest rates going up by 2%, is not realistic. I read a report the other day it was expected to stay the same for the next 2yrs. I've read similar reports time and again over the lat 8yrs.

    You know, you could do the discount Rate + .5% (2.39 + .50 = 2.89%). Nothing says you have to do it the same as the stress test for the variable rate no? And with this option, you can tweak it further, crank it up a 1/4 point at a time say, if need-be. You give yourself more flexibility this way. A more nuanced approach with built-in flexibility is always better no?

  • Ad Lakhanpal,Mortgage Broker on 2016-10-12 1:04:59 PM

    Government policies need to change and evolve but generally the changes are done in consultation with the key players in the industry to avoid unintended consequences. I wonder why there were no consultation this time. It seems to me that major banks were behind this to weaken the mono-lines who provide the competition which benefits consumers. Consumers will also be hurt in several other ways. First time buyers will have restricted ability to buy. Some people who booked houses in new construction will not qualify to close the deals. Supply of rental properties will go down. If you can't buy and can't rent,where do you go? Some people will not be able to refinance to consolidate debts and may have to sell or declare bankruptcy. I am sure there are many more consequences.

    I think the Government needs to delay implementation and take a good hard look at the changes being proposed before inflicting them on the consumers.

  • Rob on 2016-10-12 8:23:08 PM

    The housing market is totally down the toilet in rural Ontario. Has been for years. Been trying to sell my house for 5 years. Newer ranch bungalow, large 2800 sqft shop, 1 acre property. Beautiful. $280000. Finally got an offer and got everything approved. 2 days before the closing CMHC came back and said no. Now they wanted my buyer to put 20% down after their 10% down was approved. I already put a down payment on another house. Any help with CMHC wouls be very appreciated

  • Kelly Rowe on 2016-10-13 3:46:02 PM

    Rob, maybe your buyers lender should try Genworth? What happened I wonder to change the approval?

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