Will the tougher mortgage rules amplify a housing market slow down?

by Farhaneh Haque
 
A special report published by TD Economics on September 6th titled “Tighter Mortgage Rules To Cool Debt Growth, But Higher Rates Ultimately Required” examined past experience to gain insight on what to expect for the Canadian housing in light of stricter lending guidelines.
The analysis showed that past regulatory tightening led to significant permanent drop in housing demand however, while the home prices took an immediate hit following the rule changes, they bounced back within two to three quarters.
Further, this report shows a disproportionate impact to large urban centers – higher priced markets where speculation or investment demand had been more significant. For example, Toronto was harder hit by the 2010 rule changes with home sales dropping a sharp 37% over the 3 months that followed the implementation date; and the 2011 rule changes took a bigger bite out of the Vancouver market, where sales dropped 27% in their immediate 6-month aftermath.
This then begs the question: is the reported slow down in markets like Toronto and Vancouver in the last two months temporary? Is history repeating itself?
Thirty days post the most recent mortgage lending rule changes instituted by OSFI (Office of the Superintendent of Financial Institutions) and more than 90 days past changes announced by the DOF (Department of Finance); critics are calling for a reversal stating that the new rules make it difficult (and in some cases almost impossible) for buyers, in particular first timers, to qualify for a mortgage and hence purchase a property.
The reality though, is that the intended purpose of these updated guidelines was to help curb the Canadian household indebtedness which sat at an alarming 152% in September 2012 – dangerously close to the 160% level that was reached in the U.S. and U.K. just prior to their economic crises.
And, while on the surface it may be easy to blame the new lending environment for what may seem to be a slowing real estate market, there is merit to considering that the real estate market may have been slowing prior to these changes and that some of the slow down could just well be the seasonal nature of real estate.
While I don’t claim to have the answer to this and only time will tell, what I do know is that qualified buyers will continue to look for homes. Whether you are buyer or a buyer’s agent, it is important to work with your TD Mobile Mortgage Specialist to inform yourself of the rule changes and how these impact your buying decision.

About the Author

 

Farhaneh Haque is the Director of Mortgage Advice with TD Canada Trust, a leader in residential real estate mortgages and home equity lines of credit. With over 18 years of lending experience, she is entrusted with the responsibility of offering mortgage advice to help Canadians make informed decisions about home financing and ownership. 

Farhaneh and her team draw upon research commissioned by TD Canada Trust, which reveals consumer attitudes and behavior related to home ownership such as choosing and buying a first home, renovating and greening a home, as well as understanding gender, regional and other demographic preferences. They also have access to proprietary research from TD Economics on topics such as Canadian interest rate forecasts and Canadian housing market insights 

In her personal time, Farhaneh is an active member of community groups promoting youth education; in particular helping high school students in securing funding to pursue post secondary education.

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About Aaron Joshua Barroso

Marketing at Zoocasa, Brokerage.

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