A combination of a temporary turn in the market and upcoming mortgage regulation changes has created a great opportunity to buy a home, that may be gone by the Fall of 2017.
There is no question that the Toronto housing market is in the middle of a change. Consider that February and March of 2017 was a seller’s market with prices increasing at a completely unsustainable and unhealthy +30%. Compare that to a healthy market where prices growing at 5-7% year-over-year. In April 2017, the Ontario government introduced a 16-point action plan to help to cool the housing market. As a result, these actions quickly turned the market from a seller’s market into a buyer’s market. This is temporary. The Toronto economy is too strong, and the demand for housing is too high for this to be a long swoon. People want to be here, and they want to own a home here. The demand for housing is waiting on the sidelines to see what happens. Those potential home buyers will be back.
Opportunity knocks in the GTA
There is a huge opportunity in the next 30-days for savvy buyers to get a screaming deal on a house. A number of homeowners bought a new property in March, with the intention of selling their existing property, only to have the market completely turn. Some houses are available on the market today with extremely motivated sellers. This is Boxing Day Sales in August for the GTA housing market. It won’t last. By the end of August, these properties will be sold. The leftover sellers will not be quite as motivated to sell for anything less than their desired target price.
Current Regulations
Right now borrowers with a 20% or more down payment (conventional mortgages) are able to get larger mortgages than borrowers with 5%-19.99% down (high-ratio mortgages). Conventional mortgage borrowers can qualify using their fixed interest rate. Therefore, this allows them to borrow more money with the same income than those with high-ratio mortgages. This is because high-ratio mortgage borrowers need to qualify for their mortgage using the Bank of Canada Benchmark Rate of 4.84%.
Recently interest rates have been edging up. They are still close to historically low levels. In terms of affordability to borrow money, we are in a very low interest rate era. Compare this to previous generations when interest rates were between 12% and 18%. There has never been a more affordable time to borrow money.
OSFI Proposal
OSFI is suggesting that conventional mortgages should also be qualified at a higher rate (contract rate plus 2.0%). This will have a big impact on your ability to get more money from lenders. As a result, Conventional Borrowers will qualify for 18% less mortgage after the rules are in place.
OSFI is proposing that this be a rule by Fall 2017. The Bank of Canada is very likely to act on this suggestion in the very near future. For more on the proposed changes, read this article from the Financial Post: OSFI tightens rules on uninsured mortgages
In conclusion, we may look back at the Summer of 2017 and consider this to be a golden opportunity to buy a home. With less demand, motivated sellers and upcoming mortgage regulations, the home that you can buy today, may be out of reach by the Fall of 2017.