Weekly Market Update, July 28/17

Looking good, another all time high for this time of year!

You say about article "They say it will affect less than 1% of mortgages in Canada, which makes no sense to me".

You think it is more than 1% or less than 1% ?

Must be the first time in over two years the active condo listings fell for the week. Seeing a lot of bank owned condos maybe that's the reason.

I think it will affect nearly everyone going for an uninsured mortgage, unless there is something I'm missing.

It will affect 100 percent or all of the mortgages in Canada. If it's enacted it affects every mortgage in Canada in all price ranges.

It affects every mortgage in Canada in every price range whether the mortgage is insured or not insured. If you can't pass the stress test you pay 7 plus percent at the sub prime lenders like Home Capital. If you can't renew your mortgage with a sub prime lender than you put your house up for sale or lose it.

No, it won't pass. At least not in the same way you described it. Politician won't do anything that will upset most of the voters other than giving themselves a pay hike.

I don't think there a lot of people with 20% or more down payment who borrow more than 4 times their income so I think the new rules will affect only few... I think the interest rate will hurt more in Q1 next year... maybe not Edmonton but Toronto for sure..

Look at this https://ca.investing.com/rates-bonds/canada-5-year-bond-yield ....

Hi Sarah, in your blog you are confusing contract raye with bank rate. Insured borrowers today must qualify at the five year bank of Canada raye which is currently 4.84% (was 4.64% before the recent rate hike). Contract rate is the rate you actually pay which today is about 2.79 on a five year fixed. So 200 points over this contract rate in this example would be 4.79%. These upcoming changes are bringing uninsured mortgage applicants to the same playing field as insured applicants in terms of the stress test.

@Cam:

What do you mean by "uninsured" mortgage? If you mean uninsured by CHMC, then I can tell you it's been that way for a few years. All of my mortgages were uninsured because I provided more than 20% down pay and I still had to qualify for the posted rate every time.

It certainly will. You will see. I was the first one on this blog to predict the increase in interest rate when many and even most of you disagreed with me. It increased exactly as I predicted.
It's coming in the 4th quarter of this year and I think even though Alberta prices didn't go down substantially due to the very low interest rate in part it will still be impacted less than Ontario and BC for the very simple reason that due to the oil price recession there weren't too many who got crazy and there wasn't any significant foreign investment either.
Interesting times ahead anyways.

The article is not very clear, but, I understand it to say that OSFI is planning to prohibitit bundled mortgages and this change would affect less than one percent of mortgages. However, extending stress test to insured mortgages would have a "far greater" (but not defined in the article) impact.

You can't compare month over month like that, as prices always plunge in the summer since the buyers are on vacation and not really looking to buy so sellers have to lower their price to sell. We just hit an all time high for this time of year!

Single Family price down more than $10,000 in a month.

Cam is right. I am surprised how so many of you (including Sara) got it wrong.
it's not 2% above BOC posted rate, it's 2% above your contract rate. Right now you can get under 3% fixed rate or under 2% variable rate.

Those who spend their maximum have to go to private bank for party of their mortgage, which is minimum 10%

Some people get down payment from private loans, that's how everyone can afford million dollar house. But we don't have the accounting rule to foreclose people's house when it's under water, that was effective during US housing bubble.

I live in Edmonton, and this is exactly how all the 30-something couples I know buy houses (6 in the past year, to be precise). At best, the down payment is a pseudo-loan from parents (2 cases) and in the medium case it's a new line of credit at a competing institution that is immediately maxed out (3 cases), and in the worst case there's a double mortgage in place (1 case).

You seem to think that financial institutions care about the rules -- they don't. Maybe they care to the extent that they ensure they can't be proven to not care, but everybody from mortgage brokers to even big banks turns a blind eye when it comes to 1) the down payment, 2) verifying income, and 3) all the stupid ratios on insured mortgages because in the end the mortgage is insured and there is no risk to them. Heck, one of our couple friends went down to 5% equity from 20% when it came time to renew because they quite literally couldn't qualify at a reasonable rate once CMHC would no longer insure the mortgage.

It may not come down any time soon, but there are hundreds of thousands of people in Edmonton who "own" a house with no equity and who treat monthly payments like rent because the whole world throws money at them. I don't know if/when this will end (I would have guessed by now, and I am wrong!), but very few people under the age of 50 have much equity in their houses -- don't kid yourself. It's all financial games, and it will continue until the lenders start to lose money and then they (or rather CMHC) will lose a ton of money. C'est la vie, baby.

It appears that you are correct Cam, here is the excerpt from the article that explains it:

"The biggest change is the implementation of a stress test for all uninsured mortgages (those with a down payment of more than 20%). Under current banking rules, only insured mortgages, variable rates and fixed mortgages less than five years must be qualified at a higher rate. That rate, of course, is the Bank of Canada’s posted rate (currently 4.64%, a few points higher than typical contract rates). Going forward, it will be replaced by a 200-basis-point buffer above the borrower’s contract rate."

So when mortgage rates move closer to the BoC posted rate, under the current rules the stress test becomes relatively easier to pass. This way it's tied to the contract rate, not the posted rate. I'll update my comments above so the article is correct. Thanks for pointing that out.

" Bank of Canada’s posted rate currently 4.64%"

It is 4.84% not 4.64%.... Even if 0.2$ looks small it counts a bit when you have to qualify for a mortgage... - around 2.5% of the mortgage value...

Right, but still 2% will qualify you for 15-20% less than before....

@Sharon

That's certainly not the case here. People use private loans to buy, only if they believe that the price will up in the near future. Maybe Vancouver now, maybe Edmonton back in 2007. But right now in Edmonton, no one is doing that.

Maybe you are surrounded by stupid people? In my circle of friends (all in 30-55) most (if not all) have paid off their mortgages and are living in houses in the ranges of $400k-$1.5M
You can't simply generalize what you see around yourself to the whole population. I myself paid off my mortgage (of $250k) in 8 years and moved up to a much bigger house and I am on my track to pay of this mortgage in <5 years.