Looks like Canadians are set on homeownership, despite additional proposed mortgage rule changes that could further limit affordability. The BMO Housing Confidence Report states that a full 46 per cent are looking to buy property over the next five years.
As well, about half of current homeowners are looking to upgrade their abode over the same time frame. This confidence points to last summer’s amortization and housing affordability changes having less of a cooling impact than anticipated, as buyers may be overcoming the financial struggle of shorter payback timelines.
The Amortization Effect
It can’t be denied that previous mortgage rule changes have taken a toll on the Canadian housing market. Cutting the maximum amortization length for high-ratio buyers to 25 years put ownership out of reach for some buyers, and the resulting market slowdown had some economists calling for a crash. Now that the dust has somewhat settled, a rosier market outlook has emerged.
Jim Tourloukis, President of Advent Mortgage Services, says the benefits will become clearer over time. “In the short-term, the impact can be viewed as negative,” he says. “However, I believe that this will in fact help stabilize the market over the long run. Without the changes, the imbalance of the (market) supply/demand would have continued until the market imploded. This would have hurt the entire economy.”
He adds that the latest round of OSFI’s proposed changes, which would limit amortizations for low-ratio mortgage owners as well, will have less of a ripple effect due to a smaller affected group – according to a Martiz survey conducted for CAAMP, only six per cent of mortgages taken out last year have an amortization length longer than 30 years. “I believe the impact of these further changes will be small,” Tourloukis says. “It will cause a smaller shock than previous changes and it will impact less consumers.”
Are We Putting a Dent in Our Debt?
These mortgage rules were put in place for two main purposes – to discourage would-be buyers who can’t truly afford homeownership, and decrease the amount of household debt carried by Canadians. A recent Genworth Canada Homeownership study found that buyers took this caution to heart, and shifted their focus to growing their down payments and avoid high-ratio financing. However, record low mortgage rates may still be fueling homeownership enthusiasm, and leading to some overextended buyers.
Home Ownership is Not For Everyone
Tourloukis believes that when it comes to stemming household debt, mortgage restrictions aren’t the answer. “If the government wants to curb household debt, they should look beyond the mortgage market,” he says. “Other consumer debt (credit cards, unsecured Line of Credit, loans, car loans,etc.) continue to grow as a proportion of total debt yet the government has not looked at this sector.
“Home ownership is not for everyone. People must live within their means,” he adds. “If that means renting in Mississauga rather than downtown Toronto, then so be it. People must realize that home ownership is a privilege not a right!”
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