Housing Trends for October, Market Slowing Down?
Recently, Royal LePage released their House Price Survey, showing that while the average home sale price in Canada is up between 1.8% and 4.8%, the number of homes being sold dropped compared to 2011.
Most analysts believe this is in part due to Finance Minister Joe Flaherty’s mortgage regulation changes made in July, the most significant aspect of which changed the maximum amortization period for mortgages from 30 years to 25 for mortgages that have a down payment of less than 20%.
If it’s true that fewer homes are being sold because of this change, then it’s obvious that many people were buying homes before that on very shaky financial footings.
The average home price for a 2-storey home is $403,747.
As of today, using that sale price as our guide, our mortgage calculator shows a 25 year amortization period with a 5 year term and a fixed-rate mortgage at the best rate of 2.99% equals a monthly payment of $1,909.
Changing only the amortization to 30 years (which is no longer possible for mortgages with a down payment of less than 20%), we get a monthly payment of $1.696, a difference of about $200.
That means that people who would have bought a house in June (before the mortgage changes were passed) had less than a $200 margin for error on their budgeting.
Given the number of things that can go wrong as a homeowner – whether it’s repairs, an increase in interest rates, or something like a job loss or medical issues, if you can’t weather an extra $200 a month in your budget, you probably shouldn’t have been buying a house anyway.
So maybe it’s okay that the rate of buying homes has slowed. If it means more people will be in a stronger financial position when they eventually DO qualify for a mortgage, we’ll have less defaults and a stronger market in general.
Not sure how much house you can actually afford?
Try out our mortgage affordability calculator If you are disappointed with the results? Don’t worry!
Yes, the new regulations mean you may not be able to buy the house of your dreams right now. It may mean buying a cheaper home that’s a bit further from the location you wanted, or a bit smaller, or a bit more of a fixer-upper.
The important thing is that you’re buying something you can afford. Something that won’t leave you house-poor. That will leave you the flexibility to adjust to changes in income and increasing interest rates.
If you’re a first time home-buyer, there’s no law that says you have to have the perfect detached home with the manicured lawn and the white picket fence with the backyard for your dog to run around in. Accept something smaller now, get in the market, and upgrade in a few years when you’re ready.
And remember, just because the nation-wide stats suggest the market may be cooling, always check your region-specific data. Some areas are still growing, and some may be slowing more drastically. Take your time and do your research – a house is the last thing you should rush into.