The real threat to market recovery

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Recent real estate numbers show a stabilizing market in Toronto and Vancouver, but one broker wonders if this recovery can sustain itself in the face of rising rates, and, more especially, OSFI’s tighter guidelines.
“I have said it before many times,” says Ron Butler, of Verico Butler Mortgage. “if our business has been so drastically tightened today, imagine what will happen when rates reach the 4.5 per cent average of the last 20 years?”
Butler, who had told yesterday that his business has been affected by Finance Minister Jim Flaherty’s tightening of the amortization regulations a year ago, also points to the OSFI rule changes as having a detrimental impact on the mortgage channel.
“If it were just the rule changes announced a year ago, maybe it would not be so bad,” he says. “But the OSFI rule changes that have really never been made known to the public have had a grinding effect, as they continue to be tightened on what seems like a monthly basis.”
Numbers released recently by the Toronto Real Estate Board show GTA sales dipped less than one per cent last month compared to the previous year, while Vancouver enjoyed the biggest increase since 2011.
Dianne Usher, president of the Toronto Real Estate Board, put a positive spin on the numbers citing a marked reduction in the rate of decline over the previous first quarter.
“The sales picture in the GTA improved markedly in the second quarter of 2013,” says Usher. “While the number of transactions was still down compared to 2012, rates of decline were substantially improved compared to the first quarter.”
Usher pointed to a rise in GTA prices of 4.7 per cent (year-over-year) to an average $531,374, while Vancouver house prices fell 3 per cent.
“As a growing number of homebuyers, many of whom put their purchase on hold due to stricter lending guidelines, now reactivate their search, the expectation is for renewed growth in home sales in the second half of 2013,” she said.
Beyond those simply looking to buy, Butler points to those looking to refinance or otherwise leverage built-up equity in their homes – and the qualifying hoops that they must now jump through.
“Who would have ever thought the day would come that a client with an unused line of credit would need to qualify as if the LOC was at the limit of the highest possible repayment level?” he asks. “If someone had told me that was going to happen a year ago, I may not have believed them.”
A news release from Scotiabank, using data from real estate boards across Canada, reveal home sales in June of this year are on a par with numbers from the same month in 2012. However, the tighter mortgage rules and underwriting guidelines have had the “cooling effect” intended by Ottawa.
“We estimate that the latest changes introduced last summer, including shortening the maximum amortization period for insured mortgages from 30 years to 25, may have reduced the pool of potential buyers by as much as 10 per cent,” states the release. “Beyond this levels adjustment, however, historically low interest rates, steady job gains and population growth continue to underpin housing demand. Meanwhile, improved selection and stable pricing are likely proving attractive to both first-time and move-up buyers who may have been reluctant to enter the market under tighter sellers’ market conditions.”
  • Rosemry Madden on 2013-07-10 9:44:07 AM

    I am beginning to think that I am one of the very few people left that remembers when the standard amortization of a mortgage was 25 for many years and the debt services ratios were not as flexible as they have been over recent years also, the rule of thumb "WAY BACK WHEN" was a calculation of 3% on credit card limits and credit lines even although the borrower had no outstanding balance.
    So while we believe some of the changes may have gone a bit far, wake up people this is what we have today, so work with it.

  • M. Robertson on 2013-07-10 1:08:07 PM

    Just another example of news creating the news where there is no news.

    Just another forum where Ron Butler can fan the fires to create conflict and sound like some sort of industry guru or leader.

    Rosemry has it right - these are not NEW rules, these are a return to the rules as they were. Anyone who thought that the loose underwriting would last forever... well you were wrong.

    If so many brokers can't survive because of the changes they should not have been in the industry in the first place. The easy ride is gone, work with it, or find another career and leave it to the brokers that actually know what they are doing.

  • Ron Butler on 2013-07-10 1:41:12 PM

    I think M. Robertson may need a laxative, always seems grumpy.

  • Steve on 2013-07-11 11:48:51 AM

    The problem in Canada is not loose underwriting, not high prices and not amortizations. The problem is points cards, reward card, 0 payment for 12 months cards and cash back rewards. These entice buyers to use credit rather than cash.
    Flaherty's rules jack up rents, reduce home owner's abilities to refinance expensive debt and make housing less affordable.
    Why doesn't the BAC attack those lending practices? Would seem credit cards erode consumer resources and liquidity faster than mortgage debt.
    Who is the real winner with these changes?

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