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

CCRD attends annual UBCM conference

Ocean Falls, health care, and transportation all brought forth

Terrace Search and Rescue headquarters gets $100K boost from Prince Rupert Port Authority

Investment to help grow regional response capacity in Northwest B.C.

Northern Sea Wolf Wednesday sailing delayed

Adverse weather will lead to a late night arrival for passengers

Molly Wickham endorses Skeena-Bulkley Valley Green candidate Mike Sawyer

In July, Wickham filed a lawsuit against CGL over the destruction of the Gidimt’en checkpoint camp

VIDEO: #MeToo leader launches new hashtag to mobilize voters

Tarana Burke hopes to prompt moderators to ask about sexual violence at next debate

Cheating husband sues mistress for gifted ring after wife learns about affair

The husband gave his mistress $1,000 to buy herself a ring in December 2017

British couple vacationing in Vancouver, detained in US after ‘accidentally’ crossing border

Parents travelling with three-month-old reportedly being held in Pennsylvania

After losing two baby boys, B.C. parents hope to cut through the taboo of infant death

Oct. 15 is Pregnancy and Infant Loss Awareness Day in B.C.

Alberta to join B.C.’s class-action lawsuit against opioid manufacturers, distributors

B.C. government claims opioids were falsely marketed as less addictive than other pain meds

VIDEO: Trudeau, Singh posture for ‘progressive’ votes while Scheer fights in Quebec

NDP Leader Jagmeet Singh, whose party has been on the rise in recent polls, is campaigning in Toronto

Advance voter turnout up 25% for first two days: Elections Canada

Two million people voted Friday and Saturday

Okanagan principals told to confiscate vaping products from students

Vaping is up 74 per cent in youth over the last two years, according to one Canadian study

‘Rather mild’ winter expected in B.C. this year

Northwestern B.C. will be the worst hit

Most Read