Be Mortgage Smart

35 Year Amortization Option Ending

The government has set March 18 as the last day for 35 year amortizations. Key points to be aware of:

1. Lenders will likely stop accepting applications for 35 year amortizations in advance of the March 18 cut off.
2. Approved deals that close after March 18 can still have 35 year amortizations as long as the deal is approved by CMHC/Genworth prior to the date (assuming the lender accepts the deal)
3. Longer term amortizations on conventional deals (greater than 20% down payment) will remain an option with many lenders. In fact 40 years is still available.
4. Porting/moving a mortgage to a new property upon sale of an existing property is not impacted as long as new money is not required. If new money is required then a blended amortization may be an option. However taking the new mortgage with a max 30 year amortization may also be required.
5. This change is great news. The biggest mistake the government made was extend amortizations from 25 years in the first place. Expect that in the future we will see it pulled back to 25 years.
6. Prices will adjust (slowely) to the new amortization. While not so much when supply is low and demand is high, but as we move to a more balanced or a buyer's market, prices will adjust. I don't believe this will happen until the full effect of the shorter amortization is implemented - likely the fall/winter 2011 market.

 

Here is the full announcement:

Release: Department of Finance tightens CMHC rules

 

• For the second time in twelve months, the Department of Finance tightened rules on residential mortgages to help slow the pace of household debt accumulation. Changes include shortening the amortization period to 30 years (which had already been shortened from 40 to 35 years in 2008), withdrawing CMHC insurance of home equity lines of credit (HELOC), and a reduction in the maximum refinance percentage from 90% loan-to-value to 85%. Changes to the amortization period and the refinancing ratio will take effect March 18 and the HELOC change will take effect April 18, 2011.

 

Key Implications

 

• The amortization change may alter the quarterly profile of housing market activity as some sales are pulled forward by households to pre-empt it. But the impact is not expected to be large, nor does it lead us to alter our annual forecast. Existing home sales were already forecast to weaken by about 8% compared to 2010, and prices to slip by a modest 1%. On aggregate, our calculations suggest that 20K sales (annually) may be impacted by the amortization change, with the average price likely to weaken a further percentage point. However, while the last few months of data represented upside risk to our December forecast, today’s measures put our forecast back on track.

 

• The other two changes are more likely to impact consumer durables and housing-related spending. Fro instance, household usage of HELOCs is mostly directed towards renovations, vehicle purchases, and debt consolidation. Yet, on that front as well, the impact is not expected to be large. Our macroeconomic forecasts already embedded a significant slowdown in household debt accumulation and consumer durable spending. The withdrawal of HELOC insurance may cause some substitution toward more traditional mortgages, but very few financial institutions insure their HELOC portfolios.  As such, the change is unlikely to register significantly on the aggregate lending scale. Moreover, less than a fifth of refinancing deals are high loan-to-value (LTV >80%), and lowering the LTV threshold to 85% likely impacts less than a tenth of refi loans through lower amounts and/or alternative vehicles. All said, aside from some distortion on the timing of some heavily credit-dependent activities, the policy changes do not alter our forecasts.

• In terms of monetary policy, this helps take some pressure off the Bank of Canada (BoC).  With all the talk about the non-sustainable pace of household debt accumulation, there was speculation about whether or not the BoC would consider hiking interest rates for reasons not directly related to its inflation-targeting mandate. Such speculation can be put to rest for the time being, and we can go back to focusing on the inflation outlook.

Interest Rates Rise Again Into 4% Range

Interest rates moved up to the 4% range again with the increased prices of bonds.

Mortgage Rule Changes For April 19 2010

The government of Canada announced a balanced change to mortgage rules. These changes will not impact most consumers but will reduce some of the riskier lending situations.

Summary of changes:

• All consumers must qualify on the 5 year fixed rate. This likely will be the discounted rate but avoids situations where approvals were granted for variable rates. Sadly this will still allow people ill advised or less educated to get themselves into trouble by going into a variable rate mortgage and then facing much higher payments when rates eventually jump up. Just because you qualify for an amount at today's ridiculously low 5 year fixed rate doesn't mean you can afford your mortgage when rates are 2% higher in a few years.
• Investors MUST put at least 20% down payment. This effectively wipes out the high ratio investment property programs. I never had clients take advantage of those programs as the premiums were very high and the properties would never produce cash flow. This is a very good thing in my opinion.
• Refinance to maximum of 90%. Previously you could refinance your property to 95%. In most situations where someone is refinancing to 95% it is because they are struggling with their cost of living relative to their income. In some cases it is short term due to an unexpected situation but more often is is poor spending habits. The new rule is a good thing as it allows for some deflation in values before the property is underwater and possibly enters foreclosure.

Impact of changes on the housing market?

I don't see how any of the above are going to have any kind of significant change on overall demand for housing. It will take a bit of demand off of the highest risk lending which is a very good thing. The 5 yr rate to qualify will help reduce future foreclosures by a modest amount. But none of the above take active buyers of today out of the market. The only way the housing market is going to slow down is by reducing demand.

More to come?

I would not be surprised to see a last minute additional change of reducing the max amortization from 35 to 30 years. I suspect it would be last minute to avoid a rush on beating the deadline. Because parliament is not in session, the changes can be passed yet and have to wait until then. I expect there to be more changes than just the 3 announced today. However the announcement today should be taken as notice that changes are coming.

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December Greater Vancouver Real Estate Stats

Slow start, strong finish for housing market in 2009

After beginning the year at near record low sales levels, buyers’ confidence in the Greater Vancouver housing market quickly returned, allowing for significant and sustained increases in the number of residential property sales for much of 2009.

The Real Estate Board of Greater Vancouver (REBGV) reports that total unit sales of detached, attached and apartment properties in 2009 reached 35,669, a 44.8 per cent increase from the 24,626 unit sales recorded in 2008, but a 6.3 per cent decline from the 38,050 residential sales in 2007.

The number of homes listed for sale on the Multiple Listing Service® (MLS®) in Greater Vancouver declined 15.5 per cent in 2009 to 52,869 compared to the 62,561 properties listed in 2008.

“Low interest rates, an economy emerging from recession and continuing to improve, and consumer confidence led to the resurgence experienced in the Greater Vancouver housing market in 2009,” Scott Russell, REBGV president said. “Home sales neared or passed monthly records in Greater Vancouver throughout the latter half of 2009. In fact, last month’s home sales rank as the third highest selling December in the 90-year history of our organization.”

Residential property sales in Greater Vancouver totalled 2,515 in December 2009, an increase of 172.2 per cent from the 924 sales recorded in December 2008, and an 18.4 per cent decline compared to November 2009 when 3,083 home sales occurred. 

The residential benchmark price, as calculated by the MLSLink Housing Price Index®, for Greater Vancouver increased 16.2 per cent to $562,463 between Decembers 2008 and 2009.

New listings for detached, attached and apartment properties in Greater Vancouver totalled 2,153 in December 2009. This represents a 38.9 per cent increase compared to the 1,550 new units listed in December 2008 and a 41.1 per cent decline compared to November 2009 when 3,653 properties were listed.

“The number of homes listed for sale on our MLS® has been in decline in Greater Vancouver for eight of the last nine months, which results in upward pressure on home prices and less selection for buyers to choose from,” Russell said.

Total active listings in Greater Vancouver currently sit at 8,939, a decrease of 41 per cent from December 2008, and a decrease of 19 per cent from November 2009 (see graph on page two for more detail).

Sales of detached properties in December 2009 increased 159.2 per cent to 902, compared to 348 sales in December 2008. The benchmark price for detached properties increased 18.3 per cent to $766,816 compared to December 2008.

Sales of apartment properties in December 2009 increased 176.7 per cent to 1,154, compared to 417 sales in December 2008. The benchmark price of an apartment property increased 14.8 per cent since December 2008 to $382,573.

Attached property sales in December 2009 increased 188.7 per cent to 459, compared with the 159 sales in December 2008. The benchmark price of an attached unit increased 12.9 per cent between Decembers 2008 and 2009 to $478,093. 

Provided Real Estate Board of Greater Vancouver

Credit Squeeze Hits 40-Year Mortgages

The federal government will no longer guarantee 40-year or zero-down mortgages in an effort to avoid a housing crisis such as the sub-prime mortgage meltdown that rocked the housing market in the United States. And that could cause British Columbia’s housing market to cool even further.

In an announcement Wednesday, the government said government-backed mortgages would require a minimum down payment of five per cent and would be limited to a maximum amortization period of 35 years.

The borrower would also need a specified minimum credit score.

more at:
Vancouver Sun

Home Thoughts

This just in, from Canada Mortgage and Housing Corp. . . .

Number of homes started last year by builders and developers, urban B.C.: 34,364

Number of detached homes started: 10,536

Number of attached homes started: 23,828

% change from 2006, number of attached homes started: 17

% change from 2006, number of detached homes started: -14

% change from 2006, number of all homes started: 5.5

Ten years ago, six attached homes were started for every four detached homes, the national housing agency's statistics show. Last year, seven attached homes were started for every three detached homes.

" . . . high prices for single-detached homes forced some home buyers to look at denser housing forms, and the development industry responded accordingly," agency economist Carol Frketich commented in a news release.

HOME BUILDERS SCHEDULE ANNUAL CUSTOM SEMINAR

Help is at the ready for anyone looking to have a home custom-built.

On Saturday, Jan. 26, the Greater Vancouver Home Builders' Association and Canada Mortgage and Housing Corp. will be holding a full-day workshop called What's New in Homebuilding.

The workshop, to be held at the Eaglequest Golf Course in Surrey, will address the latest in construction technology, design, indoor air quality and green initiatives.

As well, CMHC consultant Lance Jakubec will discuss his organization's consumer resources and programs, including the Net Zero Energy Healthy House.

The workshop costs $60 for individuals or $100 for couples -- plus GST -- and includes lunch. Registration is limited to 50 people and is required by Jan. 17. For more information, call 604-588-5036.

AMERICAN CUSTOMER LIVES IN IKEA STORE

A 31-year-old IKEA customer, Mark Malkoff, lived in an IKEA store in Elizabeth, N.J., for a week in response to a promotion by the Swedish retailer asking Americans if they were "ready to take advantage of us."

He was because his New York City apartment was being fumigated. It is full of IKEA furniture.

"I'm their house guest, so they take care of me," Malkoff said in a telephone interview from the store, where he took up residence in a bedroom with the store's approval.

If customers want to come into his room, Malkoff said he makes them take their shoes off.

He has received invitations to birthday parties and bar mitzvahs and last week played "laser tag" with the security guards.

from

Vancouver Sun