Saskatoon Housing Bubble. To take a look at the short and long term fundamentals of the Saskatoon real estate market. To prove that Saskatoon and other parts of Canada have a housing bubble. Also looking at how the possible commodity bubble and troubles in places like China, the US and Europe will have on Saskatoon real estate.
Friday, January 14, 2011
Tougher mortgage rules are coming, but which ones?
Sources say rules now being discussed would add 100% of condominium fees to the list of expenses that is measured against income to decide whether a buyer can afford a mortgage. Currently, only 50% of the fee is considered. The move has the potential to squeeze thousands of consumers out of the market.
This is a no brainer. Should have never been 50%.
It is almost a guarantee that the government will once again lower the maximum length of amortizations for a mortgage, down to 30 years from 35. Longer amortizations lower monthly mortgage fees making it easier for consumers to borrow more.
The effects of the mortgage changes from Oct 2008 in regards to mortgage amortizations shortening from 40 years to 35 years are unknown. When the changes were put into effect, mortgage rates were not at all time lows. When the stock market crash happened, fixed five year rates fell from over 5% to the mid 3's while the prime rate fell to 2.25% from about 4. The lower rates allowed buyers to buy more house than before, the same result as a longer amortization.
Some calculations have shown the longer amortizations have goosed prices up over 18%. So on an average Canadian home at 330k, that is about 60k.
Ottawa is also still considering a far more controversial proposal to increase the minimum downpayment required to buy a home but it is unlikely to go from the current 5% to 10%, as some have speculated. A 6% to 7% range seems more likely, said the source.
What CMHC needs to do, is not insure any cash back mortgage which is essentially a subprime mortgage. 5% down payments were not a problem before the bubble blew up. But if they do change the down payment requirement, 6% or 7% is not a bad idea. This would give first time buyers the ability to learn how to save, which could come beneficial down the road when they can not borrow against their home to fix the roof or do some reno's.
Everybody but the real estate association knows that something must be done. Credit is still exploding higher. Something will be done, but until the mortgage rules are actually changed, it is all rumors.