Home buying affordability fades for millennials with new mortgage rule (with VIDEO)

Federal move slashes purchasing power of first time buyers by up to 20 per cent: economist




Millennials trying to buy their first homes face a dramatic hit to the amount they can borrow as a result of the federal government’s move to tighten mortgage qualification rules later this month.

That’s the warning from B.C. Real Estate Association chief economist Cameron Muir, who says the federal finance minister’s announcement Monday flies in the face of government efforts to improve housing affordability at the low end of the market.

“It’s going to have a dramatic impact on affordability for millennials,” Muir said. “As much as 20 per cent of their purchasing power has been eliminated. Many of them will be squeezed completely out of the marketplace.”

READ ALSO: Feds target housing market speculators

Effective Oct. 17, buyers with less than a 20 per cent down payment – most first time buyers – will need enough income to qualify at a higher benchmark interest rate posted by the Bank of Canada, even though their actual payments are based on the lower rate retail banks offer them.

Right now the gap between the two rates is around two per cent, so the rule is equivalent to a sudden interest rate spike of that amount for many buyers.

Muir said a couple with combined annual income of $80,000 and a five per cent down payment can currently buy a home priced at about $500,000.

“That’s going to fall to about $400,000,” he said. “That’s a $100,000 reduction in their purchasing power. That’s a substantial hit to affordability.”

It’s the sharpest government-imposed cut to what new home buyers can afford in years, he said, predicting millennials will bear the brunt.

“Unlike previous generations, their purchasing power has now been reduced through government policy.”

Finance Minister Bill Morneau unveiled the change as one of a series of measures to reduce risk in overheated housing markets.

Muir argued the mortgage qualification rule could have been phased in gradually.

“The shock over a number of years wouldn’t be the same shock we’re now going to see in the markets.”

He said the change threatens to have broader impacts, potentially triggering a drop in home construction activity, associated jobs and economic growth.

Helmut Pastrick, chief economist for Central 1 Credit Union, said he expects some drop in sales to first time home buyers as a result.

First time buyers account for a larger proportion of sales in more affordable regions like the Fraser Valley and Okanagan – up to 35 per cent – compared to around 25 per cent near Vancouver.

Unlike the foreign buyer tax B.C. has imposed only in Metro Vancouver, Pastrick said the federal mortgage qualification change is “indiscriminate” and applies everywhere, even where overheated real estate has not been a problem.

“It will ripple out beyond the first-time home buyer market,” Pastrick said, adding existing owners seeking to sell or downsize are often dependent on a first-time buyer purchasing their home.

Pastrick is in the process of scaling down Central 1’s forecasts for real estate market and B.C. economic growth for 2017 as a result of the mortgage rule change.

He expects a five per cent decline in benchmark home prices over the next six to nine months, coupled with lower sales.

But Pastrick predicts the real estate market will stabilize over time, not collapse.

“Markets will adjust –this is not the beginning of the end of the cycle,” he said, citing the strong trends of growth for B.C.’s economy, jobs and population.

Just Posted

CRD divided over fire dispatch, agrees to investigate single site option

‘Saanich taxpayers have been subsidizing fire dispatch in the region for several years’

GALLERY: Oak Bay senior boys take first game in Gary Taylor basketball tournament

Jordan Burke wins Man of the Match honours in 106-54 win over Cowichan

Two vehicle crash near VicPD sends one to hospital

The driver of a scooter was placed in an ambulance after being struck by a blue car

#MeToo at work: How reporting sexual harassment works – and how it doesn’t

British Columbians have four options to report harassment or assault, but none of them are easy

Clover Point amenities plan for sewage line projects 50 parking spots lost

New bike path proposed to be built on top of Dallas Road sewer line

VIDEO: Nellie Stock – 40 years of teaching swimming and winning hearts

Clients and friends came out to honour Stock’s 40 years of service to Recreation Oak Bay

Firefighter dies, thousands more take on California blaze

This is second death linked to the Thomas fire, northwest of Los Angeles

AHUS patient Shantee Anaquod is home for Christmas

Less than a month after receiving first dose of $750K drug, 23 year old healthy enough to go home

Moose calves rescued in northern B.C. are ‘golden nuggets:’ researcher

Calves discovered near Prince George in late May. Mother had been killed by a car

Missing Alberta man could be headed to Victoria

Police in Alberta say Vernon “Allan” Pickard has not been heard from since late November

Cineplex charges extra at some Star Wars screenings

Fans are getting a surprise twist at the box office with extra $1 charges for assigned seating

Toddler sent to hospital following dog bite at Vancouver Island daycare

Malamute/husky cross involved in incident at 1200-block of Burnside Rd. West

Provincial Contractor of the Year awards handed out across B.C.

Deputy Minister’s 2017 awards recognize excellence in transportation and infrastructure

Myers high on Canada

AT RANDOM: Mike Myers says it right, eh

Most Read