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CMHC Mortgage Rule Changes 2012: 1 Year Later

July 9, 2013
3 mins
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It was July 2012 when the Canada Mortgage and Housing Corporation made sweeping rule changes to mortgages that limited affordability to high ratio buyers, and those looking to take equity out on their home. The new rules were brought into effect to cool hot Toronto and Vancouver markets, despite concerns they may have a chilling effect on the overall economy as well. Now, 12 months later, how have those changes impacted the overall housing market?

How Have Mortgages Changed For The Consumer?

A year ago, it got harder to get a mortgage in Canada. The new rules reduced the maximum amortization to 25 years (previously 30) for high-ratio buyers and reduced the maximum loan-to-value ratio on refinances to 85%. As well, home purchases over $1 million dollars no longer qualified for mortgage insurance, and new limits were placed on gross debt service ratios and total debt service ratios at 39% and 44%, respectively.

The Real Estate Impact

The goal of these new rules was to try to chill overvalued markets and make sure the Canadian real estate industry wouldn’t head into a huge bubble destined to burst.

On some levels, it’s done just that. Housing starts — the building of new homes — has very much been impacted. CMHC predicts the final tally for housing starts in 2013 will be 173,300 to 192,500 units. That’s compared to 213,827 units in 2012.

Overall, sales volumes of homes is also down across Canada. The second half of 2012 saw declines in the number of listings on MLS.

What About Those Hot Markets?

The new rules’ impact on local housing markets has been far-ranging. The Toronto market in particular seems to have barely noticed them.

The average house price in the GTA hit a record of $542.174, on the rise from $514,567 from a year before.

However, sales volumes were down in Canada’s biggest city — until they turned around in the spring’s super hot market. For instance, in March 2013, the number of sales on MLS declined by 15.3% from a year before. By June, the drop had corrected itself and from a year before sales numbers were flat.

Out west, in pricey Vancouver, both sales and prices have been in a long slump — one that predates the new mortgage rules. By June 2013, sales volumes were up 1% after 19 months of decline.

The average home price that month was $598,400, down 4.3% from the year before but up 1.8 percent since January.

Nationally, sales volumes have been down — they dropped 2.6% in May 2013 over May 2012. And prices were on the moderate climb up 3.7% from the year before.

The Effect On Jobs and Economy

When the market starts changing like this, there are other financial impacts on our economy. According to a new report from the Canadian Association of Accredited Mortgage Professionals, 190,000 jobs will be lost between 2013 and 2015 because of the new mortgage rules. The study says 70,000 of those jobs are in the new build market while 120,000 come from the resale market.

As the year anniversary of the new rules passes, more data will surely emerge as to the short and long-term impact of these new rules. Clearly, the rules are impacting the market. But whether they’re saving Canadians from a housing bubble or devastating the job market remains to be seen.

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