December a real estate gift

It will come as no surprise that the local housing market has been on a rocket ride for the better part of two years. A large chunk of this was due to buyers from the east travelling down the 401 and 403 in search of the Canadian Dream. And they found it in Oxford County! Cheap housing compared to the markets they were leaving as well as so many of the amenities they had become accustomed to. 

We noticed a significant reduction in the amount of out-of-town buyers that we were seeing in our Open Houses in August and September. There was also a steep decline in requests for home showings from this particular pool of buyers. This can be most readily attributed to uncertainty on the part of buyers and what was going to happen with the Federal governments new mortgage rules. Buyers wanted to make sure that if there was a decline in average home values, that they wouldn't be left holding the bag. What actually did happen was the return of a more balanced market. Home values held and multiple offers became more of an anomaly instead of the norm. 

The Federal stress test, in very simple terms, means that a buyer with less than a 20% downpayment would need to be approved at a mortgage rate about 2% higher than what they would actually be borrowing at. Your lender offers you a mortgage rate of 3.44%, you would need to qualify at roughly 5.44%, even though you would be borrowing the money at the lower rate. The result is that buyers can borrow about 20% less than they could under previous mortgage rules. This is the governments attempt to make sure homeowners can afford the homes they are purchasing when interest rates inevitably rise.

That brings us to the Gift this December appears to be. As of January 1, 2018, the stress test described above will apply to ALL consumers borrowing money for a mortgage (except credit unions and private lenders). There is also a predicted .5% interest rate looming in 2018. To avoid the stress test, buyers just need to have a mortgage deal in place by the 31st of December.

If you are thinking of selling, now is a great time to enter the market, even though traditionally Christmas is a slow market. These looming changes have brought Eastern buyers back to Oxford County at levels not seen in several months. The other upside is sellers can be approved on the purchase of their next home with the current mortgage rules if everything comes together in December. The deals do not need to close in December, they just need to be firm sold deals and can close in 2018.

If you are a new buyer thinking of getting into the market, and you have done all the hard work of saving a 20% deposit, buying in December will allow you to purchase 20% more home than you will be able to purchase under the impending new rules. You still have an opportunity to put those hard earned savings into your new home!

If you have any questions about this article, or any other Real Estate questions, please contact a member of The Sherman Group. We are always here to answer all of your questions and concerns.

UPDATED! Explaining Canada's new mortgage rules

UPDATE: It was recently brought to our attention that lenders have received a grace period on this change. They now must have this implemented by the end of November. Most lenders are choosing to do so, and this is a great opportunity for buyers with less than a 20% deposit. If this effects you as a buyer, you need to have your mortgage application in to your lender before the changeover if you want to be approved under the old system. Your house does not have to be sold by the end of November, you just need to have your application submitted. This will substantially effect the amount you can borrow. If you have any questions, Tracey and I would be happy to answer them. Please feel free to contact either of us. This is good news, even if it only has a small window, for many buyers. Please don't miss this opportunity! 

New mortgage rules came into effect on October 17th and many buyers are wondering how exactly this effects them. These changes effect anyone buying a home with less than a 20% downpayment. Before the change, you only needed to qualify at your lenders posted rate, around 2.39%. In an effort to slow a hot market in a few key cities, as well as insure that buyers will still be able to afford their house payment in the case of a future interest rate hike, these buyers must now qualify at the higher Bank of Canada benchmark rate, around 4.64%.

How the math works:
The average home price in Woodstock is around $280,000, so we will use that as a benchmark. If you were applying for a 25 year mortgage, paid monthly with a 5 year amortization,  and you had saved a 5% downpayment of $14,000, your payment would be $1,239.02 at 2.39%. That is what your would be paying monthly, but under the new rules you need to qualify at the higher rate of 4.64%. And that same mortgage at 4.64% has a monthly payment of $1,571.59. That is a difference of $332.57 you must qualify for to be approved for the $280,000 mortgage, even though you will only be paying $1,239.02 per month.

If, under the old system, $280,000 had been the most the bank could approve you for, your new approval would be around $221,000. That is a difference of $59,000. Genworth, one of two companies that supply mortgage insurance in Canada, has estimated that this will leave 1/3 of new home buyers unable to purchase a home under the new rules. Fortunately, Oxford County is located in an area where great homes can still be purchased in an affordable budget. Areas like Toronto and Vancouver will be taking the brunt of the loss of first time buyers. Tracey and I would be happy to sit down and explain this to anyone with questions, or would like to see what options are available in today's home market. As always, the first best step in buying a home is to get a pre-approval from your lender. If you aren't sure who to see, we would be happy to recommend someone we know will do a great job for you!