Imminent Housing Crash

[phreezee]

Metro Vancouver 15% drop in detached homes!
Along with the Cap Gains exemption disappearing for foreign owners.
40% of B.C.'s GDP is real estate.

http://www.bnn.ca/vancouver-home-sal...n-out-1.579170

[Feruk]

Drop in sales, not pricing which is up 29% from last year and flat from month before...

[phreezee]

I should clarify, the video said 15% drop in average price from peak earlier this year.

[avishal26]

So - with the new mortgage rules coming into effect, if I'm not mistaken, this is how it translates:

1. Banks probably always get portfolio insurance on all mortgages, including even for low LTV ratio mortgages. Thus qualifying based on 4.6% (BOC posted rate) rule would apply even to mortgages with more than 20% down.

2. If #1 is true, then the rule for 25 yr max ammortization would also apply for higher than 20% down

3. #1 and #2 combined means: someone who previously qualified for a maximum $650,000 mortgage at $2600 a month (approx based on 2.6%) for a 30 year ammortization would now only qualify for $465,000 mortgage at $2610 a month (based on 4.64% BOC rate) at 25 year ammortization.

That is a 28.5% drop. I think a big chunk of that 28.5% drop would translate into house prices - because a middle class family would be able to 'afford' a significantly smaller mortgage.

This combined with Alberta's current state of 'high' unemployment, net neutral migration, and significant new home / community development in Calgary which is adding a lot of new homes on the market can only mean one thing - real estate bubble crash (not soft landing)

I wouldn't be surprised to see a 10% drop over the winter.

Also - between mid-2014 and now, in my community (Legacy SE), I have seen an 8-10% price (*edit) drop in resale and new home sales.

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From http://www.fin.gc.ca/n16/data/16-117_2-eng.asp

Changes to Low-Ratio Mortgage Insurance Eligibility Requirements

The Government also announced today changes to the eligibility rules for newly insured low-ratio government-backed insured mortgages. These new eligibility criteria will help target the funding support provided by government-backed low-ratio mortgage insurance towards safer forms of lending.

Effective November 30, 2016, mortgage loans that lenders insure using portfolio insurance and other discretionary low loan-to-value ratio mortgage insurance must meet the eligibility criteria that previously only applied to high-ratio insured mortgages. New criteria for low-ratio mortgages to be insured will include the following requirements:

- A loan whose purpose includes the purchase of a property or subsequent renewal of such a loan;
- A maximum amortization length of 25 years;
- A maximum property purchase price below $1,000,000 at the time the loan is approved;
- For variable-rate loans that allow fluctuations in the amortization period, loan payments that are recalculated at least once every five years to conform to the original amortization schedule;
- A minimum credit score of 600 at the time the loan is approved;
- A maximum Gross Debt Service ratio of 39 per cent and a maximum Total Debt Service ratio of 44 per cent at the time the loan is approved, calculated by applying the greater of the mortgage contract rate or the Bank of Canada conventional five-year fixed posted rate; and,
- A property that will be owner-occupied.

These changes will apply to low-ratio mortgage loans insured on November 30, 2016 or later. Low-ratio loans for which mortgage insurance applications were submitted prior to October 3, 2016 will not be affected. These new criteria will also not apply to loans for which mortgage insurance applications were submitted between October 3, 2016 and November 30, 2016, provided that the loans are insured by November 30, 2016.

[ercchry]

Closer to 20%.... 30yr was phased out about 4 years ago

[avishal26]

30yr was not phased out for low ratio mortgages - ie greater than 20% downpayment.

But based on the new rules in my previous post, it sounds like 30 yr mortgage is essentially phased out regardless of downpayment %, unless there are certain types of mortgages that banks don't get insurance on...

[-relk-]

A maximum Gross Debt Service ratio of 39 per cent

Does this mean if someone makes $100,000 before taxes in a year, the maximum payments for a mortgage for the year cannot exceed $39,000 a year ($3,250 a month) with the interest rate set out by the BOC (%4.xx from what I have read)?

[pheoxs]

Originally posted by -relk-


Does this mean if someone makes $100,000 before taxes in a year, the maximum payments for a mortgage for the year cannot exceed $39,000 a year ($3,250 a month) with the interest rate set out by the BOC (%4.xx from what I have read)?

Other debts are counted as well, not just the mortgage.

[avishal26]

Originally posted by -relk-


Does this mean if someone makes $100,000 before taxes in a year, the maximum payments for a mortgage for the year cannot exceed $39,000 a year ($3,250 a month) with the interest rate set out by the BOC (%4.xx from what I have read)?

$3,250 a month to pay mortgage payments, property taxes, heat and 50% of condo fees. So most likely $2600 - $2700 for a detached avg house of mortgage payments at 4.64% (current BOC posted rate)

Which equates to ~ $460k-$470k mortgage...

However, if you have a car payment let's say of $750 a month, your total debt is now $4,000 a month or 48% at $100,000 a year with the TDS (Total Debt Service ratio) limit for qualification is 44%. So, your total mortgage payments, heat, taxes etc would have to max out at $2,900 as opposed to $3,250. A drop of 10%.

[avishal26]

This guy does a good job of explaining the new rules to be implemented November 30.

http://billjoyce.com/4a_custom_text.php?id=47322

It seems as if only about 35% of low-ratio mortgages (above 20% down) are insured by lenders (as part of portfolio insurance) - so it may not have a broad impact on low-ratio mortgage affordability.

[sabad66]

http://calgaryherald.com/business/re...secutive-month

Sales are back up to pre recession levels. But is it more due to a scramble before new mortgage rules take effect?

[Xtrema]

The new rule does have some effects. I think this will continue this month as people are worrying mortgage rate may continue to go up for both Nov 30th change and US Feds rate increase in Dec.

[phreezee]

And sales down 38.8% in October for Vancouver!

[Feruk]

Originally posted by phreezee
And sales down 38.8% in October for Vancouver!

And prices... up like 25% year over year and only down 0.8% from September.

[SkiBum5.0]

Didn't TD just raise rates?

[sputnik]

Originally posted by SkiBum5.0
Didn't TD just raise rates?

They raised their prime rate by 0.15%

[kaddy]

We've been looking for a house for about 2 months now. We have no rush to leave our current place that we're renting at great price, but we want to settle down with a family. We've both owned properties in YYC before.

I've seen so many places selling fast lately in the market and I'm wondering if it's with the new rules that are in place causing this.

[cycosis]

So to those of you who are in the market right now, whats your offer strategy? Are you straight up asking for a 10% discount?

[Disoblige]

Originally posted by kaddy
We've both owned properties in YYC before.

Whoa, where in particular? I didn't know you could own property there. Crazy.

[G]

Originally posted by Disoblige

Whoa, where in particular? I didn't know you could own property there. Crazy.

Right beside the new terminal.