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Anu Khullar - RE/MAX River City
282 Calgary Trail NW, Edmonton, Alberta
P: 780-439-7000
F: 866-293-5424

Monday, January 17, 2011 - Mortgage Rule Changes...what do they mean?

A little present from Ottawa this morning. Rumours of a change to amortization came true this morning as the finance department has decided to reduce the amount of amortization that Canadians can have for an insured mortgage. This once again will impact affordability for first time home buyers.  Those buyers who are already pre-qualified and have rate holds will definitely be reduced. They have not set the dates officially but it is expected for this to be in effect March 18, 2011 and the change to taking equity to be April 18, 2011.

Add to this the expected rise in interest rates we expect a flood of applications and it will impact how much someone will qualify for under the new guidelines to be less than before.  Read the globe & mail article in full here...  That said, the majority of lenders have not been offering these products in the past year anyway, in anticipation of these changes.  So the reality is they will have minimal impact, but unfortunately the public perception of the changes will likely result in some herd behaviour that will have a mini boom-bust impact in the spring of 2011. 

Flaherty unveiled three main changes:

  1. The maximum number of years the government will back a mortgage was lowered from 35 to 30.
  2. The upper limit that Canadians can borrow against their home equity was lowered from 90 percent to 85 percent.
  3. Government insurance backing on home equity lines of credit, or HELOCs, has been removed.

What does this mean for Edmonton's Real Estate market?

Well, it will definitely have an impact in the immediate future.  The combination of tightening dollar amounts on qualification combined with an expectation of a rise in interest rates is likely going to create an 'over-heated' market earlier in the year than we normally see with market cycles.  Expect the months of February-April to have the sales volume of summer, but likely with lower inventory levels.  As a result, prices will likely rise in the short term, but then fall more dramatically in May or June through the end of the year. 

What should you do now then?

There are a few unique opportunities in this market, and other conditions that would make those in certain situations want to be patient and wait.

  1. If you are a first time home buyer - buy immediately.  There is a good selection of homes on the market currently, and with rates likely to go up if you're planning to live in Edmonton for at least 2-3 years, then you should buy NOW.  The cost savings over that time will be thousands of dollars in interest, plus you can buy at a lower price today with a likely flat market over the next 1-2 years, but will be building equity.   Rent vs. Buy Analyzer here...
  2. Do you own rental property?   Is it cash flowing to the positive every month?  Do you have over 50% equity?  Now is the time to sell investment property if you are either negative cash flowing with some equity, or you have over 50% equity and your ROE is less than 10% per year.  The market to sell investment property has limited windows of time currently, and if you can't keep a negative cash flow property for at least 2-3 years, then you should sell it now!  Contact us to discuss your particular situation at 780-701-2626 and ask for John Carter
  3. Thinking to invest in real estate?  Now is a great time to buy properly structured investment properties.  Houses under $350,000 in targeted areas, and townhouses under $225,000 are best currently.  If you have at least $50,000 to invest, and can qualify for an investment property mortgage then contact us today to discuss where the opportunities are for you.
  4. Own your home?   If you are a current property owner, and are happy with how your home suits your current lifestyle, then stay put!   The market is predicted to be flat on values year over year through 2011, if not a slight decrease in average values.  So, unless you have added or removed some new family members, got a new job or raise, or can't stand the look of your home anymore, then continue to enjoy where you live.  If any of the above are true, and you have a lifestyle reason to look at moving, contact us to discuss your current situation as market conditions will create some urgency for you to act soon if you want to make the best choice.  Call us at 780-701-2626 and ask for Anu Khullar or John Carter.
posted in News at Mon, 17 Jan 2011 17:32:20 +0000

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