Saturday, November 12, 2016
Real Estate Market
By now you are likely familiar with the Government of Canada’s most recent intervention in the housing market through new mortgage lending rules effective as of October 17th, 2016. According to a Ministry of Finance (MOF) backgrounder 2016, these measures were taken in an effort to ensure a strong and stable housing market and prevent rapidly growing household debt and lack of affordability in some major cities including Vancouver and Toronto.
The mortgage rules will require “that lenders stress test a borrower’s ability to make their payments at a higher interest rate” and that this will apply to “all insured mortgages”. (MOF, 2016). Typically insured mortgages are those that are high-ratio (less than 20% down payment) but these could also include low-ratio (more than 20% down payment) insured mortgages as well.
How will these new lending rules impact our Local Hamilton Real Estate Market? Interestingly, the new lending rules may have a potential upside on Hamilton’s Housing Market.
1. Continued Strong Demand for Housing in Hamilton—as first time home buyers are priced out of more expensive markets in the GTA including Toronto we likely see a continued intra-provincial migration of buyers to the Hamilton region. According to a Canadian Mortgage and Housing Corporation (CMHC) Market Outlook Report Fall 2016, “about a third of first-time buyers are coming from out-of-town”. As chief CREA economist Gregory Clump states “First-time home buyers, particularly in housing markets with a lack of affordable inventory of single-family homes, may be priced out of the market by the new regulations”.
2. Increase in Home Values—Appreciation—an increase in demand in our area could continue fuel price growth particularly if inventory levels remain low. “The number of new listings is anticipated to remain at a historically low level, holding the Sales-to-New Listings Ratio (SNLR) in the range of 68 to 75 per cent during the forecast period. In line with strong sellers’ market conditions, the average existing home price in the Hamilton CMA will be in the $456,000 to $504,000 range in 2016, $479,000 to $551,000 range in 2017 and $493,200 to $602,800 range in 2018” (CMHC, 2016).
3. An Increase in Demand for Rental Properties—According to CMHC, 2016 “from 5 to 10% of all prospective home buyers could be affected during the first year of implementation” of the new housing rules. They (buyers) “may delay their purchase in order to save for additional funds”. In addition, some first time buyers may be removed from the market altogether as a result of the new rules. Consequently, real estate investors may see increased demand for their rental properties as a result of a projected decreased vacancy rate.