New mortgage rules affect first time buyers

Remember when we saw all the fun the US was having with crazy long amortization terms and teaser cash-back zero down mortgages?

Oh yeah, we couldn’t be left out of that action!

That’s why in 2006 we cranked CMHC max amortization terms from 25 to 35 to 40 years. We got rid of any upper limit to insured mortgages and allowed zero down deals with interest only payments for the first 10 years.

It was the only way to compete with the Americans!

And now we hear that we’re supposed to be ‘responsible’ with our debts and ready for interest rate increases.

The government has been ramping back the gravy train over the last couple of years though, trying to engineer a ‘soft landing’ for the housing market.

And they’re succeeding, it keeps getting softer and softer.

So now we’re back to the 25 year cap. Everything old is new again.

And apparently reducing amortizations is starting to have an effect on first time buyers causing some to wait:

First-time homebuyers were expected to be the most affected by the new rules, which included reducing the maximum amortization period for a government-insured mortgage from 30 to 25 years, and also dropping the upper limit that Canadians could borrow against their home equity from 85 per cent to 80 per cent.

A year later, about 66 per cent of buyers said the changes had not affected their timeline on buying a first home, according to a survey by BMO Bank of Montreal.

But first-time buyers in B.C., where Vancouver prices were considered particularly overheated, were most likely (33 per cent) to say they would wait longer to buy their first home. That compares to 11 per cent of Ontario buyers, 25 per cent in the Prairies and 28 per cent in Atlantic Canada.

read the full article over at the CBC.

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elliot
Guest

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M-
Member

@ Nufio #65-67: I’ve always heard that as a rule of thumb, you shouldn’t spend more than a third of your gross (before-tax) income on housing.

So for an normal household (a median household earns about $60K before tax), that would be $20K/year, or $1,666/month. So rents, while expensive, aren’t unaffordable to the average household. The average household earns closer to $80K, so $2,200/month would be a reasonable rent.

My household earns about $110K, which implies that $3,000/month would be affordable. That *is* affordable for us, and we could still afford vacations and eating out, but wouldn’t save very much. Instead, we rent for less than that (a nice place, mind you), the price/rent is about 400, and we continue to build up our down payment fund.

What *is* unaffordable are the crazy prices to purchase places.

camper
Guest
camper

I find it interesting that the talk is now revolving around whether it has become a good time to buy. Already? Are we there yet? I don’t think so.

Burnabonian
Guest
Burnabonian
QUOTE All this talk about renters suck, owners are making a mint just does not add up. The average person in the GVRD who bought in the last 5 years has not even made inflation Using the Frankenindex HPI (which is heavily manipulated) straight from the offical website http://www.rebgv.org/home-price-index?region=Greater+Vancouver&type=Residential&date=2013-06-01 Benchmark Price $601,900 June 2013 3 yr. return 4.6% = 1.53% per year 3 yr. return after inflation = -0.97% per year Total 3 yr REAL loss (assuming 1% for PPTY tax per year) -5.91% 5 yr. return 5.7% = 1.14% per year 5 yr. return after inflation = -1.36% Total 5 yr. REAL loss (assuming 1% for PPTY tax per year -11.8% This is before strata, maintenance, special assessments, closing costs and PPT. So I ask again? WHO IS MAKING MONEY? My rent hasn’t moved since 2008 so it has… Read more »
Many Franks
Member
Active Member

@nufio: If you’re looking at listings that have traveling ESL students competing for them, then yes, your rents will be high. However, the numbers you quote aren’t typical of my experiences (in Vancouver, but not downtown). My last 4 years were spent between these two:

Large heritage 1BR (900 sq ft?), unbeatable Commercial Drive location, $900/mo
Front half of a Strathcona front/back half duplex, 3BR, $1215/mo

I like quirky, older places, but these aren’t slums.

Aside: feed that $1215 rent into any buy vs. rent calculator and try to convince me that it’s a good time to buy 😉

nufio
Guest
nufio

I mean the average household income in Vancouver is less than $80K a year.

nufio
Guest
nufio

ugh… the “less than” symbol screwed up that comment. What I meant was that I know people with a household income of less than $100K/yer paying $1500/month in rent in downtown.

nufio
Guest
nufio

Just signed a lease in downtown vancouver for $2k a month and similar units in the building are listed at $450K. The previous apartment I lived in downtown was sold for $460K and I was renting for $2k a month (both yaletown). I think I will probably buy if prices of these units fall to 350-380K unless rents also fall further. I find it hard to believe that rents in downtown are so high when the average household income in Vancouver is $200K/yr but I know people with a household income of $1500 in rent in downtown. Rents are ridiculous in vancouver given the average household income. The only thing that can explain this rent anomaly is a lot of foreign students driving rents up in Vancouver.

Bilbo Bloggins
Guest
Bilbo Bloggins

I call BS on the guy renting a place and now bought a place.
Numbers looked like they came out of someone’s behind.
The guy must be an idiot paying $1800 to rent something worth $330000.
You can easily rent places for $2000 that are worth $800000.

Bilbo Bloggins
Guest
Bilbo Bloggins

This just in, BC is now the worst place in Canada to be a kid.
http://www.vancouversun.com/sports/worst+place+canada/8634134/story.html

Low Rates
Guest
Low Rates
#54. You’re and idiot. Vacancies have skyrocketed in the last month. Padmapper is sending me new stuff every hour and complexes where I monitor vacancies directly have units sitting empty since May. But, keep thinking all is normal with the stupid prices and the market will finally dispense some justice to your net worth. The only credible goal now is to break the government’s back on those CHA loan backstops so the law can be changed. Regarding #13. If he was on the hook for that loan no matter what, like a student loan, he’d never do it. Escape by bankruptcy and taxpayer bailout of the lender is what’s keeping all this going. As it stands blowing every penny on a down payment gets him some new brownie points with the old lady so he can get laid more often.… Read more »
shock_minus_control
Guest
shock_minus_control

So.Much.Derp.

Burt
Guest
Burt

Burnaby offers areas where low 300’s will bring $1600 a month.
Mid 200’s will bring upwards of $1400.

First and second hand experience on both examples. Not justifying prices, but not all places are equally overvalued. There are above abysmal yields to be had if one looks hard enough.

Vancouverites definitely need to change their perspective on municipality boundaries. Too many people make it sound like the North Shore or Burnaby are vastly distant, different, inaccessible suburbs. Bringing them up automatically dismisses the validity of affordability arguments.

We need to look at this area as Metro Vancouver, and evaluate it as such.

That being said, I do think condos will continue to get more affordable for some time to come.

WHO IS MAKING MONEY?
Guest
WHO IS MAKING MONEY?
All this talk about renters suck, owners are making a mint just does not add up. The average person in the GVRD who bought in the last 5 years has not even made inflation Using the Frankenindex HPI (which is heavily manipulated) straight from the offical website http://www.rebgv.org/home-price-index?region=Greater+Vancouver&type=Residential&date=2013-06-01 Benchmark Price $601,900 June 2013 3 yr. return 4.6% = 1.53% per year 3 yr. return after inflation = -0.97% per year Total 3 yr REAL loss (assuming 1% for PPTY tax per year) -5.91% 5 yr. return 5.7% = 1.14% per year 5 yr. return after inflation = -1.36% Total 5 yr. REAL loss (assuming 1% for PPTY tax per year -11.8% This is before strata, maintenance, special assessments, closing costs and PPT. So I ask again? WHO IS MAKING MONEY? My rent hasn’t moved since 2008 so it has gone… Read more »
father
Guest
father

this is just the start, once all the empty condos hit the market we are going to see even lower rents while home mortgage & all other factors are combined in it will obviously be way cheaper to rent. renters are going to be like king’s/queens that people need to fill in vacancies left right & center

Larry
Guest
Larry

what do you think of that Snowden dude? he must have some big balls

George Soros
Guest
George Soros

Was watching the 10 yr rate on ING. It was an amazing 3.69% for a long while and 10 days ago it went to 3.79% and today it is 3.99%.

That doesn’t sound like a lot but its the thin edge. On a $700K mortgage it ups the payments by $1350 per year. Not a big deal but its a start.

We will never again see a 2.75% 5 yr. fixed. The 30 year bottoming cycle in interest rates is over and they are slowly going up. This will former tailwind will be a headwind for real estate prices going forward.

bearheadsinthe sand
Guest
bearheadsinthe sand

what renters are going to leave for their kids, you asked. My best guess, rental contracts.
Is it time for you people to go protest in the new restaurant in DTES! Dont forget to ask the vreaa`s crowd to join you.

#thisisadisaster
Guest
#thisisadisaster

I rent out a 1 bdrm condo in one of the best suburbs and get a similar (albeit slightly lower) cap rate than the guy wearing flame retardant. Not amazing by any stretch, but with low condos fees and interest rates, makes renting harder to justify.

People in Vancouver would be shocked to know the kind of rents you can get in other desirable locales with less rental supply. If you rent for $1800 but your place is worth > $1M, then great. Stay there. Forever. But please don’t pass this off as some kind of indication of general market conditions, when it’s plainly obviously unwarranted bear hubris.

Village Whisperer
Member
Village Whisperer

Guess who’s trying to cash out of the real estate market in Vancouver?

http://whispersfromtheedgeoftherainforest.blogspot.ca/2013/07/guess-whos-trying-to-cash-out-of-real.html

billy
Guest
billy

#50 that is what you said in 2009 for 2012. How that turned out?

Rent
Guest
Rent

I am renting a house for 1800.00 and my neighbour is trying to sell his place for 1,250,000. Where do you find places which are that cheep. Are you somewhere in US

father
Guest
father

#49 we will buy your house in 2015 for half of what you paid & leave it to our kids at 55

billy
Guest
billy

At 65 I will have paid of house that my kids will inherit. What renters are going to leave to their kids?

emmi
Guest
emmi

@13, Only you can set the ownership premium that is acceptable to you. Good luck with your endeavors and especially your travels.