The housing market un Canada is doing pretty well. Although not all local markets are seeing the activity levels that are typically found in markets like Toronto and Vancouver overall house prices have been on a steady rise for quite some time now. To help mitigate risk in the housing market, the government backs and regulates the Canadian Mortgage and Housing Corporation (CMHC), which provides insurance on mortgages in the case of a homeowner going into default. This helps to prevent a massive devaluation in house prices like was seen in the US housing crisis.
To address potential new risks due how high home prices have risen in the housing market over the past decade with interest rates being so low CMHC has made several changes over the past few years. In the past 24 months the mortgage insurance premiums have been increased twice. They've also increased downpayment requirements for both rental properties and houses over $1 million to 20% instead of the 5% required for houses not in those categories. None of these changes seem to have cooled the market off.
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The newest change being introduced by CMHC will affect any approvals granted after February 14, 2016 or any deals that close in July 2016 or later. It attempts to balance the desire to help people to own their own home with the desire to protect existing homeowners from a potential rapid devaluation of housing if potentially rising interest rates make it difficult for people to keep paying their mortgages. This protection would hopefully help those who base their retirement on their home. The Finance Minister, Bill Morneau announced:
“The Government’s role in housing is to set and maintain a framework that is equitable, stable and sustainable. The actions taken today prudently address emerging vulnerabilities in certain housing markets, while not overburdening other regions... This measure will increase homeowner equity, which plays a key role in maintaining a stable and secure housing market and economy over the long term. It also protects all homeowners, including many middle class Canadians whose greatest investment is in their homes.”
When people have more skin in the game, they find ingenious ways to overcome adversity and they also benefit from lower mortgage payments. The change that has been announced works in a graduated manner, so it only affects homes that are sold in between $500,000 and $1million. While the 5% requirement will remain the same for houses up to $500,000, any house that costs more than this will have to pay an additional 5% downpayment for the amount of the purchase price that is between $500,000 and $1 million. With the national average MLS house price under $500,000, this is a measure that is clearly targeted at some of the hotter marketplaces.
To see how this may affect your purchase take a look at the table below:
What do you think about this newest measure? Leave your comments below.