Well, in short, not much. I've seen the Global and CBC headlines shared out by countless Real Estate and Mortgage Professionals in the past 36 hours. I've actually had to go back and re-read it several times as it seems some are seeing it as "great news for buyers" but it's really much ado about nothing in its current form. In the past, these announcements usually take effect within 30-45 days as to stimulate the busiest months for real estate transactions. However, nothing even remotely positive comes into play until September.
How does it affect our local market?
Regardless if you are a buyer or a seller, this is not likely to impact you much at all, and I want to give you some background as to why.
You see, I've been the long time Chapter member for Newfoundland on the Mortgage Professionals Canada (Atlantic) Board since the regional chapters were created in 2011. During the past 8 years, I and other industry professionals from the Atlantic provinces have met quarterly to discuss housing issues, challenges, shifting mandates and to identify opportunities. We act as a sounding board that cover many of our Local, Regional and National housing/borrowing issues. In the past, much of the "unintended consequences" were discussed and predicted by these chapters post implementation. Still, our input has fallen on deaf ears for the entire tenure of Morneau's tenure as Federal Finance Minister.
30 Year Mortgage (revisited)
One of the main pieces of legislation MPC collectively recommended prior to the release of this years budget was the return of the 30 year (insured) mortgage for FIRST TIME BUYERS. This increase in amortization would have brought immediate affordability to many buyers who had been shut out of the market with the previous round of "stress testing".
There are many that say an extended amortization will only giving the banks more money, and yes, they will benefit, but this solution is still the lesser of 2 evils. 1st time buyers don't tend to buy their forever home on their first go. They buy starter homes which help build equity over time. As they age, and needs change, they adapt and become "move up" buyers to accommodate their growing families. The alternative that's being presented is pushing off home ownership as the to bar continues to be pushed further and further out of reach. This coupled with having to deal with rising rent prices, presents a lose/lose situation.
Case in Point:
Lets take a look at your average renter/future buyer:
$1000 per month in rent = 0% return on your investment. In 5 years you have nothing to show for your payments of $60,000.
$1000 per month for a starter home - would provide about a 50% return on your investment in the form of $30,000 in equity built in this same time frame. This number jumps to $35,000 if you you're paying an accelerated bi weekly payment as the majority of people do. This example assumes there will be zero market appreciation - so even in times of status quo, you'd still be further ahead than the average renter would be.
RSP Limit Increase
The increase of the amount of RSP's you're able to use for your down payment from $25,000 to $35,000 shows yet again how far out of touch the Treasury Dept is from reality. Most of the 1st time buyers we encounter are not sitting on vast sums of money in their retirement funds at this early stage of their lives. They're paying down student debt, trying to gain footing in their careers and struggling to save at all.
A Swing and a Miss...
As for the 5%(resale) and 10% (new home) CMHC shared equity mortgage announcement, there really wasn't enough detail to explore this bad idea further. Unfortunately, we won't know much more about this initiative until Sept, so it's hard to comment at this time. However, like many of these announcements, my prediction is that once revealed, it will appeal to few and come with restrictions that will deter the majority of people from taking advantage of it.
I'm generally an optimist, but in this case, the Federal Liberals had a real opportunity to actually help First Time Buyers (and hold on to tens of thousands of millennial voters) in the process. Instead, they've opted to dismiss them completely and force them back onto a treadmill that's going nowhere fast.
Mark Norman has been one of the top Mortgage Professionals in the St. John's area since 2004. Earning his Accredited Mortgage Professional (AMP) designation in 2006, Mark has been actively involved in the Canadian Mortgage Industry at the National level, and during that time and has traveled North America for professional development, getting the latest insights to ensure his clients are always implementing the best money saving mortgage strategies possible. His expert advice has been featured in The Globe and Mail, Canadian Real Estate Magazine, Canadian Mortgage Professional magazine to name just a few. He has also been the recipient of the prestigious AMP Excellence award from Mortgage Professionals Canada. He remains the "go to" voice in local media when changes are made to government mortgage regulations that affect Newfoundland borrowers.
