The federal government recently announced changes to minimum down payments on properties priced below one million dollars. Many headlines are oversimplifying and inaccurate. The change is not as simple, nor as painful, as a jump to 10% down on homes over 500K — this is not the correct math at all.It is a sliding-scale increase, meaning that the extra dollars required rise gradually (i.e., a $675,000.00 home now requires a down payment of $42,500.00 or ~6.3% down — NOT 10%). As such, the impact on markets is expected to also be gradual and marginal, save for possibly Calgary where an already cooling market needs anything but further restrictions.
One might ask why further restrictions for prime borrowers are required at all in a nation with historically (and consistently) low arrears rates. Mortgage arrears rates have come down from their ‘high’ of 0.43% in 2009 to a current 0.29%.
The answer is, in a word, Optics. There is an undeniable statistical link between the amount of equity homeowners have in a property and those same homeowners’ likelihood of falling into arrears or foreclosure. More equity = less risk. The optics of this change appear as good governing. This looks like an effort to moderate rapidly rising prices in the two largest markets (Toronto and Vancouver), and increase stability.
This regulatory change also has a net effect similar to a subtle increase in interest rates from the Bank of Canada. More restrictive lending guidelines are far more targeted than the Bank of Canada moving interest rates, which affect the entire economy, not just real estate.
Moving interest rates is simply too big a macro-economic lever to lean on in an effort to slow, or lower, home prices in just two cities of the nation.
One might ask why further restrictions for prime borrowers are required at all in a nation with historically (and consistently) low arrears rates. Mortgage arrears rates have come down from their ‘high’ of 0.43% in 2009 to a current 0.29%.
The answer is, in a word, Optics. There is an undeniable statistical link between the amount of equity homeowners have in a property and those same homeowners’ likelihood of falling into arrears or foreclosure. More equity = less risk. The optics of this change appear as good governing. This looks like an effort to moderate rapidly rising prices in the two largest markets (Toronto and Vancouver), and increase stability.
This regulatory change also has a net effect similar to a subtle increase in interest rates from the Bank of Canada. More restrictive lending guidelines are far more targeted than the Bank of Canada moving interest rates, which affect the entire economy, not just real estate.
Moving interest rates is simply too big a macro-economic lever to lean on in an effort to slow, or lower, home prices in just two cities of the nation.