New mortgage rules make buying hard

How’s this for an opener:

While the country’s new mortgage rules are meant to cool the market, eventually making housing more affordable, they’ve put home ownership out of reach for many prospective buyers.

Uh-huh. And what if the problem was that we put home ownership in reach of too many prospective buyers?

Those who don’t have a down payment of 20 per cent or more will be limited to a maximum amortization period of 25 years. Since 40 per cent of new mortgages last year were for 26 to 30 years, according to a survey from the Canadian Association of Accredited Mortgage Professionals, real-estate neophytes might feel the change most dramatically.

WHoa! Did they just say 40 percent of new mortgages were over 25 year amorts?

Another new rule announced by Mr. Flaherty sets the maximum gross debt-service ratio – the percentage of household income being used to pay for housing – at 39 per cent so buyers will be less likely to take on mortgages that are too big and could leave them floundering if rates increase.

That’s the one that Andrea Benton, a 37-year-old entrepreneur in North Vancouver, B.C., said hits her family of four hardest.

“It means my total family income would have to be an exorbitant amount to afford an $800,000 house,” she said.

You mean you’re expected to have a high income to afford an $800,000 house?!?

Read all the comedy in the full article here.

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VMD
Member

[Update from the Chinese Forum front] Richmond RE Pumper “GreatChina” calling for “Unity of Sellers” to prevent further price drops.

“A brand new house in good area of West Richmond, 8111 Dalemore Rd, was just sold for $1.58M, $170k lower than assessed price of $1.75M. It’s a shame that the buyer went through so much to purchase this property and build a new house, hoping to earn some money while doing a service to the community, only to have the buyer recklessly slashing price. I call on the sellers to withhold giving in to under-asking offers. We should all pull our listings and wait until a better market to sell in a bidding war situation”

HAHAHAHAHA

Current listing: MLS® V953065 http://www.ecorealtyinc.ca/listing?id=259508474
Purchase price: $533,000 Oct 2006 (old timer, was torn down and rebuilt as luxury mansion)

VMD
Member

take this with a grain of salt for now..
according to user “gse36” at RET,

“*using sales reported between May 27, 2012 and June 26, 2012, and actives as of today
14.7 MOI in van west detached. yikes
7.8 MOI in van east
7.4 MOI in north van
18 MOI in west van
23 MOI in richmond”

I thought we were just talking about 14 MOI in Richmond by end of June? Need another take on this.. ZRH2YVR? GVREB?

patriotz
Member

“Did they just say 40 percent of new mortgages were over 25 year amorts?”

Remember a new mortgage is just that, a new mortgage. It does not mean only a first time buyer, it includes anyone buying a property or even taking out a new mortgage on a property they already own. 40% of all that over 25 years is very, very scary.

Virtually all first time buyers go over 25 years.

UnagiDon
Guest
UnagiDon

@VMD: Thank you for this, it is one of my favorite posts of the year.

CanuckDownUnder
Member
CanuckDownUnder

I was going to update the Aussie market but Mish beat me to it. Housing shortage indeed.

http://globaleconomicanalysis.blogspot.com.au/2012/06/laugh-of-day-no-risk-of-housing-bust.html?x#echocomments

Prices will be up in June but reality suggests otherwise.

registered
Member
registered

@1 VMD quotes: “I call on the sellers to withhold giving in to under-asking offers.”

Encourage them to hold fast at every opportunity. The faster these neophyte, loss-adverse Warren Buffett wannabees ride the inevitable to the bitter end and are flushed from the economy the faster we heal.

Boombust
Guest
Boombust

This “logic” being presented about how the new mortgaging rules REDUCES buying opportunites is riduculous.

Hmmm, let’s see how this might work…

Tougher rules = fewer sales.

Fewer sales = LOWER PRICES.

It’s not rocket science.

Duh.

Keeping An Eye On The Pimps
Guest
Keeping An Eye On The Pimps

“It means my total family income would have to be an exorbitant amount to afford an $800,000 house,” she said.

Hey, what the heck, it makes “pride of ownership” even more prestigious.

On a serious note, the amortization on the junk condos should not be more than 15 years, that’s how long the plastic and K3 board will last.

yvr2zrh
Member
#1 VMD. Richmond has had so few sales this month that prices are fallilng quite good and many large discounts. Almost every sale now is below assessment and people making price changes are bringing asking price below. On the Dalemore property – stats are accurate but consistent with the other transactions being sold in Richmond now. In addition, given the nationality of the Richmond building spec’ers (they are not Chinese) – posting in the Chinese forum will not reach these sellers. Separately, I think we can see some of the impacts of the rule changes already happening. There has been a small spike in sales volume in the past week – which is against the seasonal trend. This will likely result in the June 2012 having higher sales numbers than 2008. Although we are trending like 2008, this market has… Read more »
yvr2zrh
Member

#2 VMD – sorry – did not see this. These are not accurate. Issue is that you can not really run sales transactions by date because recent sales don’t post perhaps until 2-4 weeks later. Richmond will end with 14, Van-West 10. I think West Van is 12. Van East is 6.

It’s almost the worst we’ve had for this time of year. However, inventory is now flat through the summer so only falling sales will increase MOI.

I’m off on Vacay now for 3.5 weeks – – so .. I’m going to try to go offline.

condo watcher
Guest
condo watcher
exx Says June 27th, 2012 at 8:07 pm It’s 2008 all over again for these two Sahalee/Nahanee towers I’ve been watching in Port Moody. Except in 2008 there was only one of them 2708 660 NOOTKA Way, 2b/2b 908sqft $375,000 (V959298). i followed the sales in that highrise along with several others in the tri cities last spring(2011), mainly to prove to myself that all the MSM hype and various realtor boards talk of never ending price increases were just bunk– here are a couple of sales from that building—they all sold for less than originally purchased for #2707-bought for 424.9k in 2009—sold July 2011 for 377k #1007-bought for 364.9k in 2009—sold July 2011 for 346k #2303-bought for 652.9k in 2009—listed for 709k in Feb 2010 and eventually sold for 580k in May 2011 #2807-bought for 429.9k in 2009—eventually sold… Read more »
Anonymous
Guest
Anonymous
@patriotz: Last I spoke with a mortgage broker they were trying to push me into a 35 year mortgage (yeah it was a while ago). They claimed that it made the most sense because it offered the most flexibility. It could be accelerated to a 25 year mortgage by increasing the monthly payment but if you needed the money you could still pay at the 35 year rate. I suspect that a lot of people fall for that and take the longest amortization possible. I suspect that they get more commission the longer the mortgage is given all the extra interest that is paid. Didn’t feel like they had my best interest at heart because I kept telling them that we didn’t want a 35 year, we wanted a 25 year but they kept trying to tell me what I… Read more »
PCinWA
Member
PCinWA

“It means my total family income would have to be an exorbitant amount to afford an $800,000 house,” she said.

I feel badly for Andrea Benton. It’s unconscionable that only people with either a lot of money or with a high income should be able to afford million dollar homes. Where’s the fairness in this world? The model (US, circa: 2006) where anybody with a pulse should be allowed to “buy” any home they wanted at any price with other people’s money works so much better.

Anonymous
Guest
Anonymous

“It means my total family income would have to be an exorbitant amount to afford an $800,000 house,” she said.

The lady does not understand the term ‘afford’. Just because a bank would loan you 800K before the new mortgage rules does not mean you could afford it. They are saving you from yourself.

vanpire
Guest
vanpire

Every single person I personally know who bought during the last rush took out a 30-40 year mortgage. After financing the renos and other “lavish homeowner lifestyle” expenses using their “equity” they are all basically underwater now, but have a hard time admitting it.
Regular first time buyers CANNOT AFFORD 25yr amortization and they have nowhere near 20% to use as a down payment. So that is basically it for the newbs.
Anyway, no average Joe buys anything right now, the only sales are done by misguided “investors” , agents and developers. An exclusive club of fools.

taylor192
Member

@ #12 Anonymous

My broker said the same thing. Most people who take a 30yr could qualify for a 25yr, yet it’d make life much tougher and he believes it is NOT in their best interest to be stretched just to buy a home.

Very surprising to hear from someone who makes his living selling mortgages.

vanpire
Guest
vanpire

RE: not being able to afford an $800,000 house:
It is mind boggling that a person would actually go on record with such drivel. Good, grief, she is supposed to be an entrepreneur!!!???
WTF does she do for a living? Escort services paid for in cash under the table?

Vote Down The Facts
Guest
Vote Down The Facts

@Anonymous: “could be accelerated to a 25 year mortgage by increasing the monthly payment but if you needed the money you could still pay at the 35 year rate. I suspect that a lot of people fall for that and take the longest amortization possible.”

Fall for what? It’s no trick! It makes sense to take the longest amortization possible, providing you’re contractually able to make prepayments (either monthly or as a lump sum annually).

patriotz
Member

@Vote Down The Facts:
The problem with your argument is that it supposes that the buyer is financially rational (i.e. would borrow at 35 but pay at 25), but no financially rational person would buy at today’s prices in the first place.

Anonymous
Guest
Anonymous

@vanpire:

Yeah, “entrepreneur”…

She runs a crappy little website and a blog…

http://weeboot.ca/

Anonymous
Guest
Anonymous

@taylor192: “Most people who take a 30yr could qualify for a 25yr, yet it’d make life much tougher”

Maybe true, but the fact the payment is higher now and as you say that makes life much tougher will cause people to sit out of the market. It just puts the monthly cost of buying that much higher than rent.

Vote Down The Facts
Guest
Vote Down The Facts

@patriotz:

A mortgage advisor would explain the benefits of a long amort, and it wouldn’t be their job to inform a buyer if any sort of purchase makes financial sense. So you’re wrong – there’s no need for any kind of financial awareness on the part of the buyer to allow them to take advantage.

piklishi
Guest
piklishi

Global BC 8AM news had the following title “House pricing drop” and mentioned that a correction is on the way and prices have already dropped. Now, media started telling the truth too…the bubble has officially started to pop. Enjoy your day fellas.

UnagiDon
Guest
UnagiDon

This is what you get when you accept the lowest bid for your renos.
http://www.cbc.ca/m/touch/canada/story/2012/06/28/toronto-leaning-house365.html

Anonymous
Guest
Anonymous

@Vote Down The Facts: “A mortgage advisor would explain the benefits of a long amort, and it wouldn’t be their job to inform a buyer if any sort of purchase makes financial sense.”

The ‘mortgage advisors’ job is to sell a mortgage. That is it. Offering a lower payment makes the sale easier.

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