Baby, we got a bubble!?

[TheKingEast]

Not really. I see it as something to reign in price growth at these low interest rates... which according to might even persist to 2014.

Would you not say price growth is due in large part to foreign investment? If we really wanted to reel in price growth we'd make it much more difficult for foreigners to speculate here. Other countries have done this and the prices dropped.

 

[Eug]

Would you not say price growth is due in large part to foreign investment? If we really wanted to reel in price growth we'd make it much more difficult for foreigners to speculate here. Other countries have done this and the prices dropped.

No, I would say that price growth in Toronto is in small part due to foreign investment. Significant, but not as significant as in Vancouver. An example to use is detached homes. By certain indicators, their price growth have outpaced that of condos, and my suspicion is that the percentage of buyers being foreign investors is quite low.

 

[interested]

From the Globe:

http://www.theglobeandmail.com/repo...-canadians-thousands-flaherty/article4359232/


Mortgage clampdown will save Canadians thousands: Flaherty

Bill Curry

Ottawa — The Globe and Mail

Published Thursday, Jun. 21 2012, 8:21 AM EDT

Last updated Thursday, Jun. 21 2012, 8:42 AM EDT
22 comments



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Finance Minister Jim Flaherty says clamping down on mortgage rules will save Canadians thousands of dollars as he confirmed four changes to the rules governing insured mortgages.
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At a news conference in Ottawa, Mr. Flaherty confirmed that Ottawa will reduce the maximum amortization period to 25 years from 30 years. The maximum amount Canadians can borrow when refinancing their homes will be lowered from 85 per cent to 80 per cent. The availability of government-backed mortgages will be limited to homes with a purchase price of less than $1-million and the maximum gross debt service ratio will be fixed at 39 per cent and the maximum total debt service ratio at 44 per cent.

The changes will take effect on July 9, 2012.

 

[interested]

Would you not say price growth is due in large part to foreign investment? If we really wanted to reel in price growth we'd make it much more difficult for foreigners to speculate here. Other countries have done this and the prices dropped.

The KingEast, you are correct that removing foreign investment will affect prices but the question is how much?

No one knows and until they don't get the data, the government can't make decisions based on a "hunch". That said, I hope that some of our brain trust in Ottawa is collecting this data and if there is a large foreign speculative content, will act to curtail it.

I think Eug is probably correct and that the foreign component is not as large as people think. It sounds good to "hype" Toronto as a no fail investment to say "everyone is buying here so you smart locals should do the same".

 

[mettle]

osfi guidelines...

http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=4967

should have *some* impact on prices.

 

[js97]

With the new mortgage clamp down to 25 years, I wonder how it will impact prices in 2014. The combination of increased interest rates and a forced reduction in amortization from 35 to 25 (for all those that could only afford the prices at 35/30 yr amort rates), mortgage costs can conceivably (and very easily) go up even with a smaller debt.

Will this trigger a 'sell off', or a price similiarly to 2009/2010 prices?

 

[interested]

^^^
My guess unless there is an external traumatic event, price declines back towards 2010 levels. Will not effect resale as much. The precon where future growth is already in the price is what is going to get more hit.

 

[Ric]

that just made monthly payments 11% higher, so a corresponding price adjustment downward will be needed to accommodate the same monthly installments as if the amortizations was 30 years.

Totally agree. The reverse occured when amortization was increased from 25 years (to 30, 35 and 40 years).

Sellers will initially hold out for their price but eventually (I predict by late 2012 when all the 120-day locks have expired) prices will adjust downward to reflect the new lack of affordability caused by the reduced amortization.

 

[Eug]

I think in the near term (< 6 months) it will cause a slowing of price increases to maybe a relative plateau in prices in the 416 and the 905.

I think in the mid term (> 2 years) it will continue the slowed prices increases to maybe a relative plateau in prices in 416 and the 905.

ie. It will slow growth, but won't completely kill it. And even if prices do drop a bit, they will be modest and will slowly recover, unless there is some economic calamity that occurs.

 

[interested]

I think in the near term (< 6 months) it will cause a relative plateau in prices in the 416 and the 905.

I think in the mid term (> 2 years) it will continue the relative plateau in prices in 416 and the 905.

ie. It will slow growth, but won't completely kill it. And even if prices do drop a bit, they will be modest and will slowly recover, unless there is some economic calamity that occurs.

Agree, though there may be up to 10-15% of correction back to 2008 or 2010 levels. Prices may more modestly decline or just flatten (if Mr. Flaherty and all of us are lucky).
Of course, if there is an external shock to the system....disorganized Europe "Grexit", unexpected event, severe recession in US or elsewhere then the correction will be more severe.

The other question will be how many people will the new changes really affect. Everyone up to 2010 should have enough equity that by the time they renegotiate and have paid their mortgages, they should have the ability to cover the additional 11% costs of taking the mortgage from 30 to 25 years. 2011 purchasers perhaps more dicey. Those buying precon at $650-700 we will have to see but I think may end up being unwise if financing based on small downpayments and especially if CMHC insured.

 

[Ric]

Agree, though there may be up to 10-15% of correction back to 2008 or 2010 levels. Prices may more modestly decline or just flatten (if Mr. Flaherty and all of us are lucky).
Of course, if there is an external shock to the system....disorganized Europe "Grexit", unexpected event, severe recession in US or elsewhere then the correction will be more severe.

The other question will be how many people will the new changes really affect. Everyone up to 2010 should have enough equity that by the time they renegotiate and have paid their mortgages, they should have the ability to cover the additional 11% costs of taking the mortgage from 30 to 25 years. 2011 purchasers perhaps more dicey. Those buying precon at $650-700 we will have to see but I think may end up being unwise if financing based on small downpayments and especially if CMHC insured.

Interested,

The immediate effect will be felt by the first time buyer. That entry level one bedroom that is for sale for 350K today will have to drop by 10% in price to be affordable for buyer with reduced amortization rule. The move up seller who purchased earlier will also have less equity in the one bedroom and less downpayment for the townhome they are looking to purchase. That townhome will have to fall in price for the move up seller and this effect will continue up the line.

 

[interested]

^^^
I agree Ric.
That said, I think frankly that most first time buyers are already stretching to get to $300-$350K. This will save them from themselves. I guess what I am not so sure of is whether people will just elect not to move/trade up if prices are lower by 10%.
I guess what I am saying is perhaps people will accept less as did our parents adjusting to the "new reality" as it were.

 

[Eug]

Toronto condo market prompted new mortgage rules, Flaherty says

The average price of a Toronto condo – $334,952 – was up in the first quarter of the year, as were total condo sales. In spite of anecdotal evidence of some cooling since, Canada’s Finance Minister decided it was time to step in.

Although Vancouver’s housing market has also been strong in recent years, his comments made clear that the GTA’s many new glass condo towers were on his mind.

“In Toronto in particular, what I’ve observed and heard about from developers is continuous building without restriction,†Mr. Flaherty said. “It’s distorting the market, quite frankly. And for that reason, we’re taking the steps we’re taking.â€

A source close to the Finance Minister said Mr. Flaherty has been preoccupied with the relentlessly lofty real-estate prices in Ontario’s capital, his own backyard.

“He’s been fussed about this for a long time,†the source said. “He thinks the builders are out of control. … He spendsa lot of time in Toronto, and he sees it.â€

 

[interested]

Brad Lamb was interviewed on BNN.

In essence he said that the new rules would not affect at all the SFH. (I think that may not be totally correct but definitely these moves today will have less effect on SFH in the GTA.

He suggested it would not have much effect on the new condos and might prevent a few sales but not many and he felt "it was the right move" for the finance minister. I was surprised by that comment. Perhaps he is saying that it will not have an effect because he doesn't wish to spread more fear/doom and gloom. I don't know. Just interesting.

 

[cdr108]

Brad Lamb was interviewed on BNN.

In essence he said that the new rules would not affect at all the SFH. (I think that may not be totally correct but definitely these moves today will have less effect on SFH in the GTA.

He suggested it would not have much effect on the new condos and might prevent a few sales but not many and he felt "it was the right move" for the finance minister. I was surprised by that comment. Perhaps he is saying that it will not have an effect because he doesn't wish to spread more fear/doom and gloom. I don't know. Just interesting.

he doesn't need to, nor wants to spread further concern.
all the r/e brokerages and mortgage industry reps have already come out and said it will negatively affect an already slowing market.

BJL caters to first-time buyers and investors of small condo units, who will be the primary ones affected by the new rules.
but i disagree with him when he says SFH won't be affected.
it affects all on the property ladder from first-time buyer to the million $ property.

i heard somewhere that they also changed the TDS / GDS ratios but haven't read it.
it was said they increased the ratios such that the lowering of the amortization was offset by the increase in TDS / GDS.

anyone have info on that ???