New Mortgage Rules to Have Greatest Impact on Calgary

A new round of mortgage rule tightening will increase the minimum downpayment required for some homes effective February 15, 2016 across Canada.

The downpayment for properties up to $500,000 will remain unchanged at 5 per cent.    However, 10 per cent will be needed for anything in excess of $500,000.

For example, a $700,000 home would require a $45,000 downpayment:

5 % of $500,000 = $25,000
10% of $200,000 = $20,000
Total = $45,000 or 6.4% downpayment

These new measures intend to cool the Vancouver & Toronto markets – but here’s the rub:  CIBC expects Calgary to be hardest hit.

Remember, homes above $1 million already didn’t qualify for high-ratio insurance and downpayments needed to be at least 20 per cent.  So in reality, the new mortgage rules will only affect homes with prices in the $500,000-$999,999 range.

With that in mind, CIBC expects only 5% of Toronto homes and 2.5% of Vancouver homes will face any effects to the changes.

CIBC found Calgary has the largest share of units valued between $500K and $1 million with a high-ratio mortgage.

Calgary to be impacted the most

Some markets that don’t need cooling will be affected the most

Ten percent of Calgary home sales are expected to be impacted by the updated rules, the highest proportion in the cities analyzed by CIBC.

Instead of cooling down Canada’s hottest markets, this new change could exacerbate an already correcting Calgary market.

To download the CIBC report, click here pdf

To read the Dept. of Finance Canada news release, click here

4 responses to “New Mortgage Rules to Have Greatest Impact on Calgary

  1. Great coverage on this Mike. The intention of the changes makes sense for the Vancouver and Toronto markets, but will be an unintended consequence for Calgary. However, for a $700K home, that’s only a $10K increase in the down payment. Doesn’t seem like a significant amount? Timing of the increase is also interesting. It is just before the spring market, so we might see a busier Q1 (relative) due to buyers getting in before Feb 15th and also possible mortgage rate increases (which may be already happening).

  2. Thanks, TheActuary.

    Year-to-date, 5412/18328 (29.5%) of Calgary home sales would’ve been in that affected $500,000-$999,999 price range.

    How many buyers only had 5% down though?

    CIBC’s estimates are based on the percentage of mortgage originations that are high ratio, but that’s everything under 20%. Without a further breakdown of how many put 5-10% or 10-20% down, we’re left with a huge data void and unable accurately assess what sort of impact to expect.

    Regardless, the $500k-$1M market has already slowed dramatically due the layoffs in the energy sector, and this downpayment adjustment won’t help.

  3. Other banks are weighing in on the changes.

    TD: tighter mortgage regulation unlikely to be a game changer. The impact on housing activity is likely to be relatively modest and short-lived
    click to read report

    BMO: Ottawa’s changes to down payment rules should have a minimal impact on home sales and prices, and are a less aggressive move than those brought in back in 2012.
    click to read report (page 6)

  4. RBC has uploaded their analysis. Here are the Calgary excerpts:

    -Toronto and Vancouver are the targets…although Calgary also will be quite exposed.

    -Unfortunately, these price categories also represent a substantial share of Calgary’s market, where approximately 30% of resales in the first 11 months of 2015 were in the $500,000 to $999,999 range. The rule change consequently raises downside risks in this currently stressed market.

    -Reinforces our soft landing thesis, but the outcome could be harsher in Calgary.

    -While the rule change is unlikely to be a shock that would derail housing activity overall, it might have more significant adverse consequences in Calgary. We will continue to monitor the situation very closely in this market for signs of significant weakness rising from sources other than the downturn in energy sector.

    To download full report, click here

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