Mortgage rules won’t cool market

Moira Baird
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Local real estate agents say first-time homebuyers will feel pinch

Finance Minister Jim Flaherty

A trio of real estate agents in the St. John’s area say Ottawa’s new mortgage rules won’t send the local housing market into a deep freeze — but first-time homebuyers may have to lower their expectations.

On Monday, federal Finance Minister Jim Flaherty announced new mortgage qualifying rules designed to curb household debt — reducing the maximum mortgage period to 30 years and the amount Canadians can borrow against their homes to 85 per cent.

They take effect March 18.

Jim Burton, manager of ReMax Plus Realty, said the changes are designed to protect homebuyers, and consumers will have to adapt to the new mortgage reality.

That’s especially true for first-time buyers.

“They may have to aim a little lower in their price-range to qualify after March 18.”

By way of example, he said the new rules will mean the buyer of a $300,000 house is looking at a mortgage of about $285,000.

“They need $4,000 more to qualify on a 30-year amortization versus a 35-year amortization,” he said.

“They’re going to have to look for something that fits their price range. They may have to look at something a little lower priced, if you use this example.”

Burton said the average resale price for existing homes in the St. John’s area is $251,000. For new homes, it’s about $335,000.

His real-estate advice?

“We see the market having good legs. This is a time to be prudent.

“Anybody out there right now, I would highly recommend locking in long term. There’s lenders offering five-year money at 3.69 per cent.

“Look at the amortization schedule, make it fit your budget.”

•••

 

Bruce Mullett, broker for Exit Realty on the Rock, described the mortgage changes as “probably the least obtrusive” Flaherty could have made.

“I don’t think it’s actually going to hamper the overall market that we’re experiencing in St. John’s and in the whole province.”

Mullett said he figures the rule changes could cost first-time homebuyers about $100 per month.

“That makes a difference to some people when you’re starting out for the first time,” he said.

“With the market being very active in the St. John’s metro area, it’s going to mean that their expectations are probably going to have to come down just a little bit to get into that affordability area.”

On a $300,000 home, a 30-year mortgage at four per cent interest will cost a homebuyer an extra $105 per month, according to the federal government. It also said the homebuyer will save $41,850 in interest over the life of that mortgage.

•••

 

Glenn Larson, manager of Royal LePage Professionals 2000, says the mortgage changes will have a bigger impact on over-heated housing markets in Toronto and Vancouver.

He figures the St. John’s area market will weather the tightened-up rules.

“Somebody may not qualify for as big a house, so they may adjust their thought process there,” said Burton.

“They’re tightening up things so people don’t get into financial difficulty, which I agree with.

“I’ve got no argument with what Jim Flaherty has done today.”

First-time homebuyers will feel the biggest impact.

“The new buyer — that’s who’s going to hurt the most.

“But, again, we’re not Toronto or Vancouver. Our average price is $250,000, so amortizing on that is not like amortizing 35 years on $1 million.”

 

•••

 

During the last few months of 2010, the housing market in St. John’s and surrounding areas has slowed slightly — something that was predicted last spring.

“The market did slow down slightly in the latter quarter of last year,” said Mullett. “It wasn’t unexpected.”

Last spring, both the Canadian Real Estate Association and the Canada Mortgage and Housing Corp. (CMHC) forecast a slow fourth quarter in 2010.

Both Burton and Mullett say the first few weeks of January have been brisk for their companies.

“Our agents are more active in January than we experienced last year at this time,” Mullett said.

“Out of the gate for 2011, it’s been busy,” Burton added.

“For the last couple of weeks, the market has been brisk — much busier than it was in November and December.”

Burton said ReMax is forecasting house prices will rise this year by as much as eight per cent.

CMHC, on the other hand, is forecasting house-price appreciation of three per cent.

“Anytime you see population growth, income growth and employment growth, that leads to higher consumer confidence and people tend to get out and spend money,” Burton said.

 

mbaird@thetelegram.com

Organizations: ReMax Plus Realty, Canada Mortgage and Housing, Royal LePage Professionals 2000 Canadian Real Estate Association

Geographic location: Ottawa, Toronto, Vancouver

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Recent comments

  • debbie
    January 20, 2011 - 11:43

    In other provinces the realtors understand that paying 6% on a 400000 house is unrealistic and welcome a negotiable commission. Looking for ward to the day NL realtors aren't so greedy and are willing to negotiate. In Alberta we paid our realtor with a full MLS listing 3.5% commission which they had to split with the other realtor. With houses moving this fast, it is more than fair!

  • Bob Williams
    January 19, 2011 - 07:58

    When you have realtors such as Jim Burton with his super greasy car salesman smile leading the young people on by saying that house prices will rise, then what do you expect? My suggestion to the young people is cut back when you buy a house on the flashy furnishings save a thousand bucks and do what I did by making a BULK payment of a thousand dollars on the PRINCIPLE. Of the thousand that you put down as a bulk payment $950.00 will come directly off the principle. Do you know how long that would take by making regular mortgage payments. A long time on a new mortgage. And you will be saving on that thousand bulk payment for 30 years. Do this whenever you can come up with a saved thousand. I did this over and over and reduced my entire mortgage life to just FIVE years. Hope this helps.

  • Ben
    January 18, 2011 - 19:41

    Its time to cut out the middle man out on buying and selling homes. With the increase in pricing its about time. There is no need for realitors any more, time for change. I think it will happen.

  • Brad
    January 18, 2011 - 10:48

    The government is looking to cover their own asses in case of a meltdown, USA sytle. This way there is less risk to them having to bailout banks because of deliquent mortgages. If they were really concerned for the consumer they would do something about the ridiculous soaring housing costs, and crack down on the credit card companies charging criminal interest rates. You try buying a house for $250,000 and see what you'll get. I don't need the government telling me what I can and can't afford, I am capable of determining that myself thank you very much.

  • P F Murphy
    January 18, 2011 - 10:15

    I figured Flaherty should have gone to 25 or 20 years, but as Bruce Mullett (EXIT) said this is "least obtrusive" which I would see as enough of an appearance to get the Conservatives through any upcoming election before the outstanding 5/35s are crucified by the rising interest rates. With close to 600 realtors in Nfld and a population of 500K, you've got to figure that a bunch of these folks will have to seek an occupational re-allocation with even a slight down turn.

  • David Wilson
    January 18, 2011 - 08:21

    Is anybody else besides me getting sick of Jim Burton "forecasting house prices will rise this year by as much as eight per cent". The reason the prices start creaping up is the fear mongering that these agents cause. It stirs the buyers up into a frenzy to get into the markaet asap which drives up the prices of homes. And then these agents still get their 6% comission. House prices go up, the agents make more money on the commission and are thay doing any extra work to earn for the extra commision? NO. But that is a debate for a whole other time.

  • Jeff O
    January 18, 2011 - 08:21

    This isn't a news story. It's free marketing for local realtors. No matter what the news is, they'll always say the market is either busy or about to get busy. it's always a great time to buy, because prices are going up, better jump in now, blah, blah... Any slowdown in the market is always "expected" and "temporary." Of course that's what they always say. They're realtors, and their only priority is to drum up more business.

  • Txpayer
    January 18, 2011 - 07:43

    5/35 mortgages are NINETY percent of all new mortgages. Na there won't be an effect on the market from the new rules. Apparently there are still more than 100 ways to state data to fool the public into thinking everything is fine. That's a big difference between the CMHC and salesmen ie. 3% and 8%. CMHC's figure was before the changes. Wonder if either will be right or if a minus sign wiill come into play.