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.