March Update: Rule Changes Impacting Market?

So far this month SFH average prices are down $7,500 from February’s month-end, and down $17,000 from March 2010.  The median is down $5,000 from last month and down $28,000 from last March.

Similar story for condo prices. Average price is down $7,700 from last month and down $14,000 from last March.  Median prices are down $11,000 from last month and down $19,000 from last March.

Normally, I purposely refrain from posting prices during the mid-month reviews because a lot can happen in the final two weeks.   But the reason I’m looking at prices this morning is because of what some are asserting regarding the market – that the rule changes are having a minimal impact.

But that may not necessarily be the case in Calgary, where the impact of more stringent lending rules may have been overstated, said Sano Stante, head of the local realtors organization.

“I’m not convinced that new mortgage rules have been that significant in impacting our market,” said the president of the Calgary Real Estate Board.  “Honestly, we don’t think that it’s going to have a huge impact,” he said.

President of the Calgary  Real Estate Board said the impact of the changes will be minor for most buyers.

To avoid higher monthly payments, the logic goes, many buyers tried to sign mortgages before the deadline, sparking a flurry of activity that drove up prices. Once sales die down, prices could slide.

Although this may be the case for the national market, Stante said it doesn’t have to be the case in Calgary, where the economy has been relatively strong.     (Source 1, Source 2, Source 3)

job market report from the City of Calgary this week actually paints a completely opposite picture to CREB’s hypothesis.  From the report:

During the 2008-2010 period, Calgary entered the recession after Canada and has  still not recovered all of the job losses associated with the downturn.  Canada has however recovered all the jobs that were lost and is now into the expansion phase of the business cycle.

(click to enlarge)

What could be dragging the average/median prices lower so far this month?  First-time buyers, getting into the market before the rule changes.   Those that need to have a 35-year amortization would likely be purchasing homes priced on the lower-end.

I’m not the only one that thinks that 35-amortizations (and the end of them) is and will have a big impact on the market.

The following was taken from a RE/MAX agents monthly newsletter:

There’s no more 35-year amortization.  Period.  The new maximum amortization is 30 years.  And you must have an approved mortgage in place by March 18 at the absolute latest to get the 35-year.

That might not sound like a big deal and maybe it’s not for you.  But if you’re the type who wouldn’t think of getting a 35-year mortgage anyway, you will be shocked to know that MOST buyers have opted for the maximum amortization over the last few years.  The vast majority in fact!

That’s a reflection on our society I suppose.  The majority of people want to get the most house they can possibly afford for the lowest payments.

If you don’t think that the rush to get in on the 35-year mortgage is affecting the market, you’re wrong…  The only question is, “How much is it affecting the market?”  That’s still a very large unknown.

Interesting that the flurry of activity before changes haven’t driven up prices, but rather depressed them.   Have first-time buyers reached the limits of their purchasing power?

30 responses to “March Update: Rule Changes Impacting Market?

  1. Mike, great insight. I could not agree more. Despite daily reports in the media that there is a rush of buyer racing to beat the deadline. I just don’t see it.

  2. Hi Mike,

    Here’s my question – all those folks who bought with 0-40 in the height of the market – let’s say 2006-7. They probably had 5-year terms, right? That will come due 2011-12… and they will only now have access to 30-year amortizations. Problem?

    Mike Fotiou says: According to the First Foundation Mortgage Blog: “Typically, as long as you are not changing your loan amount at renewal, you should be able to continue with your original amortization schedule, although you should confirm this with your individual lender or mortgage broker. However, if you need to increase your mortgage via a refinance at renewal, you will be subject to the limitations of the new rules.

  3. This market is so hard to predict. I don’t think we’ll know how much the rules have affected inventory levels, prices and sales until we’re into April and all the data comes in. Your right though, I did think that prices would artificially increase as a result of higher sales, I guessed wrong. Good analysis thanks!

    Mike Fotiou says: Thanks for your comments!

  4. I have yet to see any cited statistic that describes how many people get 25/30/35 year mortgages. All due respect to that realtor’s newsletter but they are speculating unless they have bank data. The only data I have heard is that the majority are actually 25 or less but it is old (2003-2004 as I recall)

    I am inclined to agree with you Mike that first time buyers are probably trying to get in under the rope this month. Usually March sees a big gain in prices.

    I guess we’ll see who is right on this one pretty soon!

    Mike Fotiou says: CMHC didn’t really start insuring 30 year mortgages until 2006…so that would explain the majority at 25 year amorts back in 2003-2004. 😉

  5. CanuckDownUnder

    Count me in the group that’s surprised the market hasn’t been stronger so far this spring.

    If we take the findings of that City of Calgary report from a couple months back and assume that the amortization changes have the same effect in both directions then we should see SFH prices go down between $30,000 and $50,000 as a result of these latest changes.

    Mike Fotiou says: Did you take household income growth since 2006 into account? Inflation? Interest rates? It can’t be assumed that previous price gains translate directly to losses. However, I do think the impact of bringing amortizations closer to where they were historically will be quite noticeable.

  6. CanuckDownUnder

    Mike – I didn’t go back and look at the report but I thought they concluded that interest rates had no effect on prices. I just brought the whole thing up as a hypothetical of what we could see.

    Personally I’m still predicting that SFH prices will return to the 3-3.5X median household income range. Using $95,000 as an estimate for 2011 that means we’d have to go below $332,500 this year but I don’t see that happening.

    A more likely scenario would be prices remaining stable around the $400,000 mark until the median income hits $114,000 (this would happen around 2016 if incomes grew 4% a year between now and then).

    Or of course we just hit somewhere in between.

  7. Great post as usual. I think that the Debt/Disposable Income ratio due out very soon will tell the real story. As this number increases (because of increased debt relative to income increases) the weight of increasing debt levels must have an impact on housing. I can’t remember where I read it, but over the last few years the average mortgage is a 7% down / 32 year. Obviously, the ability to get credit has driven housing, so the deleveraging that follows will have the opposite effect.

    As for the 35-30 year term – most people don’t understand the math of how interest really works. All they know is that the monthly payment will have gone up and/or the amount of house they can afford goes down. I have a feeling that the debt/income is a bigger tell on this market. Unfortunately Statscan doesn’t give this data out by city.

    Mike Fotiou says: That certainly would be helpful to have it narrowed down to the city level.

  8. I don’t understand how someone could say that they’re “not convinced that new mortgage rules have been that significant in impacting our market.

    Either marginal buyers that were afraid of being literally priced out because of the impending shortened amortizations bought homes (typically at the lower-end of the market) or Calgary is in the midst of a March housing price crash. The first choice is the much more plausible one (not to mention palatable) considering the timeline and events.

    Looking at the average and median price stats month-to-date compared to last March, or even just last month, you’ll see a significant change in prices.

    The condo median is currently down $18,850 from last month, down $26,850 from last March. Even look at the CREB’s rolling 30-day median, prices are still down. The same applies to whether you’re looking SFH’s average, median, or 30-day figures.

    SFH and condo pending figures both also dropped to their lowest level in over a month.

    Did the mortgage rule change impact the market? Most definitely. It torpedoed prices because of the lower sales mix and caused a surge in sales before the deadline.

    The bigger question is, how much of an impact will the changes have from this point forward?

  9. Mortgage rule changes have definitely helped the market as some buyers have acted before the change but I don’t think the effect was as significant as, when changes were made last year. I agree with Sano, that Lenders have been changing the rules for a while now and the March 18 changes are not going to be significant enough to change the market. In the very short term sales might decrease due to the spring time buyers have already bought prior to March 18.

  10. Pingback: Canadian Real Estate Forecast | Greg Williamson - Blog

  11. David, if you recall last year when interest rates were supposedly being hiked and mortgage rules were about to be tightened, CREB took the same “nothing will be impacted” position as they did now.

    President of the Calgary Real Estate Board, said the changes won’t affect new homebuyers much.

    “I think the number of sales will stay steady. These changes won’t affect that so much at all. The investors are going to have to come up with 20 per cent down now. That’s OK. They were prepared for that before,” she said. (Calgary Herald, Feb 17 2010)

    “We don’t feel this adjustment will prevent the vast majority of buyers with healthy credit to enter the housing market.” (CREB Monthly Stat Package, March 2010)

    Then later in May 2010 it became apparent the market was stalling after the rule changes came to effect (Sales Slowdown: Temporary?)

    How did CREB interpret May’s data?

    President of the Calgary Real Estate Board, called the May MLS data “just a blip.” She said, “We still expect a steady market for the balance of the year.”

    But in the end, 2010 marked the lowest sales of SFH homes in Calgary in over a decade (Source)

  12. mike,
    Great post and additional comments.
    Nice to read something about the housing market that is factual driven, and not emotional bias driven.
    Good insight.

  13. A little different comment and opinio from Bob Truman.
    Bob said:

    For those who believe that first-time buyers, in their panic to beat the new mortgage rules, were driving the prices down, here’s some more evidence…

    The median price of pending sales is at its highest point since early November. At this moment, it’s at $412,400. For most of the past three months it’s been at $399,900.

    As I predicted on March 12, the number of pendings has dropped. There are 330 pendings on the books right now. One week ago, we had 363.

    What’s going on with condos? The sales/list ratio today at 60% is remarkably high. For the past three years in March it’s been 44%, 48%, and 36%.

  14. CanuckDownUnder

    What’s going on with condos?

    Median prices are down $11,000 from last month and down $19,000 from last March.

    P.S. I don’t care about the Greater Fool.

    P.P.S. I typed that before clicking on the link.

  15. Mike,
    The last mortgage rule changes have been short term stimuls for Calgary Real Estate Market with minimum impact to the number of overall annual sales. Due to the “Stimulus”, the number of sales might have increased in the first part of the year which in turn might affected the number of sales for the rest of the year.

    The following chart shows that sales in Jan. 1 – March 21, 2010 increased versus same time in 2009 and 2010 annual sales have decreased versus 2009 annual sales. Same scenario can be expected for 2011. Annual sales for 2011 is estimated based on past 3 years.

    As to the average/median price, it is more impacted by supply/demand and overall economy than by amortization reduction. ie. to quaify for $380,000.00 mortgage amount over 35 years, the annual income required is $79,000 and over 30 years, income required is $74,000.00.

    Mortgage Rule Changes

  16. David,

    You need a higher annual income to qualify for 30 years rather than 35 – you have it backwards in your example.

    Regardless if the market “is more impacted by supply/demand and overall economy than by amortization reduction,” the new changes will still have an impact on buyers:

    “Demand will be restrained by a reduction in the maximum amortization period on insured mortgages from 35 to 30 years that takes effect March 18, which will raise the effective mortgage rate for the typical homebuyer by one-half percentage point and thus reduce affordability about 7%.”-BMO Capital Market senior economist Sal Guatieri

    And I don’t understand your point in the first two paragraphs, so I will withhold commenting.

  17. David – using CMHC’s Mortgage Payment Calculator (, if I could afford to spend $875 every two weeks on a mortgage, assuming a 4% interest rate, I could afford a $400,000 mortgage a week ago with a 30 year amortization. Today, I can afford less than $365,000. I agree that not all borrowers are fully leveraged, but I’m assuming some non-negligible percentage is. Since many prices are driven by the marginal purchaser, and that purchaser was just effectively given a 7 to 8% pay cut, so it seems reasonable to me that we will see prices adjust. I doubt that it will be the full 7 to 8% over the short to medium term, but there is very little in the real estate market that would surprise me these days.

  18. While past performance is not indicative of future results, it’s interesting to see that so far it’s trending a lot like last year before the rule changes.

    AB: show that pending Single Family Home sales peaked about a month before the deadline. Of course, we still have to wait and see whether we have peaked for 2011.

    CD: show that pending Condo sales peaked closer to the deadline – about 2 weeks prior.

    New Rule Changes

  19. CanuckDownUnder

    Mike – What’s up with the pending SFH sales? The median has jumped up to $425,000 rather fast. Is that just a result of having a bunch of sub $400K days lately?

    Mike Fotiou says: In this instance, yes.

  20. Thanks for the graphs, Mike. Looks like change is coming. If the trend is similar, which it does look like it is, then we may be seeing the lowest sales in the past 10-12 years.

  21. Hi Mike,

    Awesome posts Mike! In your opinion, how are new home builds being affected by the new mortgage rules? It seems that a lot of this data is more relevant to re-sale rather than new construction SFH. A lot of builders have been saying they’ve seen lots of movement in the last few weeks- are they full of baloney?


    Mike Fotiou says: Thanks for your comments, Elizabeth. You’re right, my data pertains only to properties sold on MLS® of which new construction makes up a small portion. According to the most recent report by CMHC on Preliminary Housing Starts, February new SFH construction was down 25% from a year earlier, while other new construction was up 9%. It will be a few weeks yet before we see March’s data. This article in the Calgary Herald says that some builders were hoping for a better market by this spring, but for the most part, it sounds as if it will be late this year. (Read article)

  22. Quick Flip

    I don’t know the background details of this story, but I noticed it as I was doing the Repeat Sales History for the Sales of the Day. It seems that opportunities exist for quick-acting investors if you keep your eyes open.

    A vacant McKenzie Towne townhome was listed for $219,900 on March 5th and sold on March 7th for $219,000.

    One week later the townhome was listed for $254,900 and sold for $250,000 on March 23rd, just 8 days after that.

  23. superjer2000

    Mike, what are the disclosure requirements for former grow-ups? I was googling another address and the street name (not the house we were googling) came up in a Calgary Health Authority list of grow-op. As we live in Evergreen and are looking in the area, we googled the other addresses in the list to see where they are located. One house C3453053 is up for sale and the description available to the public doesn’t indicate this house’s former life.

    The listing description just says, “OUT OF TOWN SELLER, PRICED TO SELL.”

    Are there no requirements for full disclosure on MLS in situations such as this? I always see notification if the house is subject to judicial proceedings.

    Mike Fotiou says: Thanks for your question. Yes, we need to disclose grow-ops. The private comments for that particular listing state: “THIS HOUSE WAS A REMEDIATED GROW-OP, INSPECTED AND APPROVED BY THE HEALTH REGION ON FEB. 27, 2009.” For more information on whether remediated grow-ops are safe, read this blogpost.

  24. superjer2000

    What would happen if a buyer (unintelligently) decided to work directly with the listing agent (i.e. they didn’t retain their own agent)? Would the listing agent have a duty to disclose this issue to the purchaser?

    Mike Fotiou says: Yes.

  25. Condominium built in 2004 Condemned

    A very sad story developing out of Fort McMurray. About 300 residents were given 10 minutes at midnight on March 11 to get out of the 168-unit Penhorwood complex because of safety concerns. At that time, the developer felt the evacuation of the residents from the seven buildings was simply being used as leverage in an ongoing lawsuit. But yesterday after further inspection the buildings were condemned.

    The condo board has a blog at and their forums are located here

    Other Sources
    Engineering Report, March 24, 2011
    Pictures of condemned building

    Minister of Municipal Affairs / Transcripts
    March 23
    March 21
    March 16
    March 15

  26. Great Post. Thanks for all the detail. It seems to me that the biggest story is the supply demand imbalance. When you look at the City of Calgary forecast it is for a slight increase in overall population, but a decrease in the 25 – 49 year old group. Yet everywhere I look in the City there are homes, duplexes and condos being built – literally 1000’s of them. We cannot possibly have a balanced supply under these conditions. Even without an increase in interest rates it seems we will have a big problem because of an oversupply.

    Mike Fotiou says: Thanks for your comments. I’ll try to find some info about how much of the new construction is being absorbed.

  27. Bay Street Too Optimistic

    An interview with Capital Economics economist David Madani on CBC’s Lang and O’Leary Exchange. They’re the ones forecasting a 25% drop in Canadian house values.

    Watch the interview here, and fast forward to 52:23 for the housing segment.

    They discuss the budget, deficit, housing, and the implications it has on the entire Canadian economy.

    “Canada’s housing market is essentially at its peak and the US – they’re at the opposite end. We’ve been in this situation before. We know how this ends. It never has a happy ending. You’ll often hear soft landings, cooling down. Rarely does it ever happen like this.

    Looking at the chart of housing investment as a percentage of GDP – we’re at a historical high. So there’s implications not only for housing investment but also construction employment.”

    They also believe that the BoC is in a holding pattern with interest rates for this year and maybe even next.

  28. terces

    I think your referring to this report.

    It doesn’t say a decrease in the 25-49 group, it says there will less growth in that group when compared to others. There will still be growth but just not as much as the rest of the groups. This makes sense because baby boomers are still the largest generation and they’re moving into their twilight years.

    As far as housing starts go, If you looking at SFH, inventory is almost a 5 year low and starts are in the normal range. If you looking for multifamily (condo, duplex), starts are high as well as inventory.

    Mike Fotiou says: Thank you for linking to the new home market data

  29. Thanks to Myke Thomas for the following stats and explanation regarding how CMHC and builders differ from their stat reporting:

    Hi Mike

    I read this morning on your website about seeking new home construction completion/absorptions. Here is what I have from CMHC:

    Completed: 333
    Absorbed: 345
    Inventory: 395

    Completed: 80
    Absorbed: 50
    Inventory: 625

    Completed: 380
    Absorbed: 410
    Inventory: 365

    Completed: 135
    Absorbed: 48
    Inventory: 617

    Obviously, absorbed doesn’t mean the owners have or are going to move-in (especially in condos) — the inventory numbers should be used with caution as well — CMHC measures it differently than builders (CMHC measures ‘spec’ homes as ones completed and includes those and showhomes in inventory — builders include any home that is not a pre-sale but has been started as being in inventory)

    Hope this is helpful

    Myke Thomas

  30. Pingback: April 2011 Calgary Real Estate Statistics | Calgary Real Estate Review

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