According to Mortgage Professionals Canada’s newly released Report on the Housing and Mortgage Market in Canada, new government policies are unduly suppressing housing activity. The report showcases that although the market is behaving the way it should in response to actual economic conditions, home buying trends have been disrupted by stress tests. There has been a significant impact on supply and demand in almost every region of the country.
Manitoba and Winnipeg in particular, are well known for having balanced markets. In 2015, the Winnipeg housing market was ranked the best in North America over the past decade. Currently, the sales-to-new-listings ratio is just slightly below the balanced market level and there is a low risk of price reductions. Resale activity and sales rate per adult figures have been stable for quite some time, but recent data hints at a downshift. The recent disruption of this long-term stability has resulted from the combination of higher interest rates and the mortgage stress tests.
While it is indeed prudent to do testing of a mortgage borrowers’ ability to afford their future payment obligations, the stress tests as currently devised, are unduly onerous and haven’t taken into consideration the market conditions for all areas of Canada. First-time buyers who are adversely affected by the stress tests, for example will have to make adjustments to their plans and this usually involves a combination of reducing their expectations (and therefore buying less expensive properties), making larger down payments and waiting longer to purchase a home. The report found down payment sources were usually from personal savings (85%), RRSP’s (40%) and the source showing the most significant change in data; loans and/or gifts from family members (48%).
Because it generally takes longer for first-time buyers to put together the savings required for a down payment, the sooner potential homeowners begin saving, the better. This is particularly important if they decide not to reduce their anticipated purchase price due to home owning wants or expectations. The minimum down payment required is five percent. If a down payment is less than 20 per cent, mortgage insurance from CMHC, Genworth or Canada Guaranty will be required. If you are receiving a loan/gift from the “Bank of Mom and Dad”, there is no maximum they can give you as long as it can be verified.
Although it remains to be seen how the stress tests will continue to play out and how they will directly affect those looking to enter the Manitoba housing market, it is clear that planning ahead and being educated is key. Whether you are a first-time buyer, a move up buyer or looking to renew your current mortgage, having a good understanding of your current financial situation, knowing your credit score, and giving yourself plenty of time will work to your advantage. Work at reducing any debt that you may have and speak to a Winnipeg Mortgage Broker as soon as you can. Best advice is at least 3 months in advance. Even if you are just considering getting into the housing market, talk to a mortgage broker. If any surprises come up (personal debt, not enough time on the job, not enough money for a down payment, credit issues), it will give you plenty of time to fix it.
As your local Winnipeg Mortgage Brokers, we can help you to navigate any confusion surrounding the stress tests and will work with you in finding the best services on the market. For more information or to get started today, please call 204-928-7722.
Source: Report on the Housing and Mortgage Market in Canada by Will Dunning