16 Jul Notes: Is it possible the condo market gets hotter?
A lot of the news this week in real estate is revolving around the quarter point interest rate hike by the Bank of Canada. What is flying under the radar is the recommendation by the OSFI, a federal regulator, to initiate a 2% stress test on all un-insured mortgages. What this means it now ALL mortgage applicants, not only those with under 20% down, will have to qualify at a higher interest rate to obtain a mortgage. For example: If you have an income of $100,000 and have saved up a $100,000 downpayment. You will roughly qualify for an $800,000 property. Under the proposed new regulations, you will only qualify for a $670,000 property. This is significant. No longer will buyers be able to ‘skirt’ the stress-test rate by putting 20% down. The bank of mom and dad, which has been helping buyers reach that 20% downpayment mark, will have less impact.
This new regulation could keep condos hot. Currently, the condo market is the best performing market segment, specifically larger condominiums. In the June sales statistics, semi-detached and detached homes were up 8% and 10% respectively in the 416. Condos were up 23% year-over-year. Buyers are being more cautious and choosing to live smaller, partly because their budgets were slashed by the first mortgage ‘stress test’ initiated last fall. Now, a scenario may unfold where higher earning buyers with larger down payments will have their budgets slashed as well, taking them out of the house market and into the more affordable condo market.
-Nick Horton, July 13/2017