Mortgage down-payment changes

Mortgage down-payment requirements increase

The Canadian government recently made a change that has now come into effect regarding the minimum down-payment required to purchase a home.  Previously, 5% was the minimum down-payment required to buy a home under most normal circumstances.  The new requirement keeps the minimum down-payment at 5% up to a purchase price of $500,000, and then every dollar above that threshold requires 10% down up to the maximum purchase price of $1 million.  Someone buying a $1 million dollar home would effectively need a minimum down-payment of 7.5%.

Affect of down-payment change on the housing market

How will this affect the housing market in Canada?  For most markets, I do not believe that there will be much effect.  The only markets that will likely see a significant affect from this change would be home buyers in Vancouver and Toronto.  Even at that point, I do not necessarily believe that it will be enough to change the market in any significant way.  The change effectively means that someone buying a $1 million dollar home has to put an extra $25,000 down.  I do not see many clients where this would be a deal breaker for them.

Mortgage broker analysis

I have written many times about my opinion that past government rule changes were made without consideration as to what is causing the hot market, taking a narrow minded macroeconomic view of the market.  This newest change is, in my opinion, more balanced in that it does not effect the average Canadian very much.  However, it appears to me that no government will take significant action to curb the hot real estate market, even though it is well within their authority.

The easiest way for the government to slow the housing market down is to enact regulations requiring foreign real estate investors and new immigrants without provable Canadian income to put a far greater amount of down-payment than 35% in order to secure a mortgage.  If the government required 60% down-payment for buyers in these categories, it would slow down the housing market price increases in Vancouver significantly.

Get into the market while you can

Barring the above-proposed change actually happening, I have spent a great amount of time trying to figure out what set of circumstances would actually cause a housing market crash in Vancouver.  Do I see a potential mass exodus of foreign investment? NO. What about a significant decrease in foreign investment? I don’t see that either.  Maybe interest rates will see large increases and cause housing to be un-affordable?  In the longer term, that is a possibility, but at most I believe that will cause a modest correction in the market, rather than a crash. Will prices dissuade people from buying?  For Canadian residents working in Canada, it will push them down to a lower level of housing due to affordability, but last year’s devaluation of the Canadian dollar vs the US dollar has actually made it CHEAPER for foreigners to purchase properties here!

I spoke with a realtor recently who indicated that housing listings in Vancouver right now are down from 12,000 last year to only 7,000 this year, while demand remains the same.  That increases the competition for each property significantly, and will bid up the price accordingly.  This has also spilled over to the Fraser Valley.  Since prices are not going down any time soon, and there are no circumstances that I can foresee that will cause the market to change, if you can qualify to buy a home, do so as soon as possible, because its only going to get more expensive to do so later on.  And if you already own a home, don’t sell unless you really must.  If you do need money, you can refinance your home.