Tightening of mortgage rules announced Thursday by the federal government could impact Calgary’s active residential real estate market which continues to see sales activity pick up.
Finance Minister Jim Flaherty is changing mortgage rules to make it harder for people with limited means to buy homes or borrow on ones they already have. The changes to Canada Mortgage and Housing Corp. rules announced by Flaherty will cut the maximum term of insured mortgages to 25 years from the current 30 years and will end insurance for homes which cost more than $1 million. The changes will also limit refinancing loans to 80 per cent of the value of a home, from the current 85 per cent.
The changes could price some people out of the housing market, said Ann-Marie Lurie, senior economist with the Calgary Real Estate Board.
“So you would expect to see some of that sales demand cool,” she said. “We’ve had really strong sales demand this year. So even if it’s cooling, it’s not going to be a total reversal of what we’ve seen. It will impact demand as you’re pricing some people out of the market.
“Another thing you’ll see is what people can afford will also change. We can expect this to have some sort of dampening impact on price growth as well. The single-family market has been fairly tight and prices have actually been increasing a little higher than expectations. This will actually bring it more in line for what we did expect originally for the year.”
According to the CREB, so far this year the average MLS sale price for a single-family home in Calgary is $479,713, up 1.77 per cent from the same period last year while sales of 7,986 have increased by 18.95 per cent. So far this month until June 20, single-family sales of 1,075 have increased by 18.0 per cent from last year with the average sale price up 2.57 per cent to $489,416.
Year-to-date there have been 11,021 MLS sales in the city, up 16.35 per cent from last year, and the average sale price has increased by 2.51 per cent to $428,521.
So far this month until June 20, total MLS residential sales in the city are 1,471, up 14.39 per cent from the same period last year, and the average sale price has jumped by 3.91 per cent to $440,385.
The mortgage changes will have a “minimal” impact on the Calgary housing market, said Todd Hirsch, senior economist with ATB Financial.
“But it will be directed at that segment that the Bank of Canada is most worried about and that is probably first-time homebuyers who might be tempted to get in over their heads with too much mortgage debt,” said Hirsch. “So I don’t expect it to have a big, big negative impact but it will affect those buyers who perhaps have to wait a little bit longer to cobble together some down payment.”
In Calgary, the impact of the mortgage rules could be that people wanting to buy a home might look at a lower price point or they will increase their down payment to access a higher price point, said Ben Brunnen, chief economist with the Calgary Chamber of Commerce.
“We’re fortunate to be in a position of growth and when changes that reduce access to financing come into play you want to be in a place where the growth is happening as opposed to an area of decline,” he said.
“In Alberta right now, we’re also seeing relatively high confidence for consumers and relatively strong spending. So when we see those things, we need to make sure that consumers don’t over-leverage themselves in the event the economy declines globally.”
According to the Canadian Bankers Association, the number of Alberta mortgages in arrears by three or more months has fallen to its lowest level since 2009.
In April, the province had 3,418 arrears or 0.65 per cent of all mortgages.
The latest federal moves are part of a string of initiatives undertaken recently by the federal government to slow the accumulation of debt by Canadian households, which reached a record 152 per cent of income in the fourth quarter of last year.
Flaherty said the changes are aimed at promoting stability in the financial system as a whole.
“We are continually monitoring the housing market,” he said.
He said his measures are especially aimed at cooling the condo market is places such as Toronto, Vancouver and Montreal.
Thursday’s announcement marks the fourth time Ottawa has tightened mortgage rules since 2008.
Recently, the Bank of Canada estimated that the number of households in arrears could almost triple to 1.3 per cent if the unemployment rate were to rise by three per cent, about the same as occurred in the 2008-09 slump.
In a statement, Wayne Moen, president of the Canadian Real Estate Association, said the government announcement is a “measured response to the government’s often stated concern about household debt levels and the housing market.”
He said the resale housing market in the country makes a significant contribution to the economy, adding an estimated $20 billion in spinoff spending and over 165,000 jobs in 2012.
Moen said the national housing market remains balanced.
“The impact of measures like those announced (Thursday) must be closely monitored to ensure they have the anticipated impact and don’t create a spillover effect and slow the economy,” said Moen. “For these reasons, going forward, we would urge the government to consider the impact of further interventions in the market carefully.”
Craig Alexander, senior vice-president and chief economist with TD Economics, said the federal government’s move is a “prudent decision to address the increasing risks from consumer debt growth.”
“The actions support our long standing view that the current 10-15 per cent overvaluation in Canadian real estate will be unwound over the next couple of years. It also suggests that personal debt growth should slow to a low single digit pace over the coming year,” he said.