BIG News from Ottawa -- Changes to Canadian Mortgage Rates Effective October 17th, 2016

WHAT THIS MEANS IS: 
This will significantly decrease what a client qualifies for when they have less than 20% down.  For example a client who once qualified for a mortgage amount of $302,000 (plus their down payment) effective October 17th will only qualify for a mortgage of $240,000.  This is a VERY BIG change and likely will affect the first time buyer market the hardest for condo’s and townhome’s and the repeat buyers looking at detached homes!

CALL US TODAY to find out more about how this will impact YOU!  --  604-743-7653 -- 
www.gelderman.ca

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Finance Minister Bill Morneau has announced new measures Monday aimed at ensuring Canadians take on mortgages they can actually afford amid concerns over soaring housing prices in Toronto and Vancouver.

“Across the country, many middle-class families looking to buy their first home see prices climbing often out of their reach. Some are taking on high levels of debt in a rush to buy before it’s too late,” Morneau said Monday during a press conference in Toronto.

Morneau said the new rules around mortgage insurance eligibility would come into effect later this month and include a “more robust” mortgage “stress test” that will ensure a borrower can make their mortgage payments if interest rates go up or their income goes down.

“Overall, I believe the housing market is sound but as Minister of Finance I want to make sure we are proactive in assessing and addressing the factors that could lead to excess risk,” Morneau said.

New rules mean mortgages may be more difficult to get

The changes mean home buyers will have to qualify for a more expensive loan, even if they don’t have to make higher payments.

Borrowers would be tested on their ability to pay their mortgage if rates were as high as the five-year posted mortgage rates among Canada’s largest banks, which currently average 4.64 per cent according to the Bank of Canada.

The requirement was already in place for “high-ratio mortgages,” and people who make small down payments. It wasn’t required for fixed-rate mortgages longer than five years.

But starting Oct. 17, the strengthened mortgage rate stress test will be required on all new insured mortgages.

RBC chief economist Craig Wright said the new stress test will make it more “challenging” for homebuyers to qualify for a loan.

“The federal government is tightening up the overall regulatory environment for mortgages,” Wright said. “It translates into a more challenging environment for those individuals looking for a mortgage whether it is availability of mortgages or indeed pricing.”

“The attempt is to cool the housing market in a controlled manner and part of those efforts involve making mortgages a little more difficult to have access to.”

Here is a breakdown of how the new rules would affect a monthly payment on a home valued at $700,000.

• House price: $700,000
• Down payment: $140,000
• Loan value: $560,000
• Mortgage: 5-year fixed at 2.17% (according to interest rate-comparing websiteRateHub.ca)
• Monthly payment: $2,418
• Stress test rate: 4.64% (five-year posted rate by Canada’s big banks)
• Stress-tested monthly payment: $3,143

And starting Nov. 30, mortgage loans insured using portfolio insurance (mortgage default insurance) will need to meet loan eligibility criteria that previously only applied to highly leveraged insured mortgages, including a maximum amortization length of 25 years and minimum credit scores.

Craig Alexander, the chief economist with the Conference Board of Canada, said the new rules will have an “incremental impact.”

“I don’t think it’s going to push many Canadians out of the housing market,” Alexander said. “And quite frankly if Canadians can’t meet the financial obligations at the five-year posted rate they really shouldn’t be getting the mortgage even if they are getting it at a lower rate.”

Ottawa also announced Monday it is closing a tax loophole that allowed homeowners to avoid paying capital gains tax on the sale of a home as long as they were living in it.

Morneau said the exemption will now be available only to Canadian residents.

The new policy is aimed at slowing foreign money that has contributed to red-hot real estate markets like Toronto and Vancouver.

The move follows B.C. adding a 15 per cent tax on foreign buyers in an attempt to cool the overheated markets.

**from Global News October 3rd, 2016 (inclds video at below link)**

http://globalnews.ca/news/2979863/ottawas-new-mortgage-requirements-could-make-it-harder-to-secure-a-mortgage/

Always Working Hard for YOU! 

The Gelderman.ca Real Estate Team

www.gelderman.ca

Sales Activity Continues to Slow Down for the Fraser Valley in August

SURREY, BC – While sales in August remained above the ten-year average for the month historically, the number of transactions processed in the Fraser Valley continued to decrease following this year’s bustling spring.

The Fraser Valley Real Estate Board processed 1,694 sales of all property types on its Multiple Listing Service® (MLS®) in August, a decrease of 2.3 per cent compared to the 1,734 sales in August 2015, and a 13.7 per cent decrease compared to the 1,962 transactions processed in July 2016.

“The numbers here aren’t alarming; they’re expected, and what we’re used to seeing around this time. Homebuyers should be encouraged that sales have slowed, giving inventory a chance to build back up and competition within the market to cool down,” said Board President Charles Wiebe.

The Board received 2,840 new listings in August, an increase of 15.6 per cent compared to August of last year, and a 12 per cent decrease from July 2016. The total active inventory for August was 6,102, down 17.6 per cent from last year’s 7,407 active listings but up 1.5 per cent from July.

"With sales activity moderating to more normal levels, we're beginning to see prices follow-suit, and even drop for certain housing types in some of our communities.

“Regardless, this is still a challenging and volatile market. Talk to your REALTOR® who can help you understand what's happening right now and what you can realistically achieve as a seller or buyer."

Across Fraser Valley, the average number of days to sell a single family detached home in August 2016 was 20 days, compared to 32 days in August 2015.

The MLS® HPI benchmark price of a Fraser Valley single family detached home in August was $888,600, an increase of 41.2 per cent compared to August 2015 when it was $629,400.

In August, the benchmark price of townhouses was $418,400, an increase of 36.4 per cent compared to $306,700 in August of 2015. The benchmark price of apartments also increased year-over-year by 29.7 per cent, going from $191,900 in August 2015 to $248,800 in August 2016.

FRASER VALLEY HOUSING MARKET SIMMERS IN JULY

SURREY, BC – Sales on the Fraser Valley Real Estate Board’s Multiple Listing Service® (MLS®) remained strong in July – however, for the first time this year, monthly sales did not break a historical record for our region.

The Fraser Valley Real Estate Board processed 1,962 sales of all property types on its MLS® in July, a decrease of 10.2 per cent compared to the 2,184 sales in July 2015, and a 31.5 per cent drop compared to the 2,864 transactions processed in June 2016.

“A slowing down in activity is expected during the summer. While it may seem drastic or alarming when compared to months prior, this easing off is welcome as we get further into the year – the pace of the market slows, and inventory has a chance to catch up,” said Board President Charles Wiebe.

The Board received 3,226 new listings in July, an increase of 14.6 per cent compared to July of last year, and a 12.9 per cent decrease from June 2016. The total active inventory for July was 6,012, down 21.7 per cent from last year’s 7,681 active listings at this time.

“This is a good thing for our market, and buyers especially. Additional inventory will help drive us towards a more balanced environment for consumers and remove some of the upward pressure on prices we’ve been seeing.”

Across Fraser Valley, the average number of days to sell a single family detached home in July 2016 was 18 days, compared to 33 days in July 2015.

The MLS® HPI benchmark price of a Fraser Valley single family detached home in July was $881,400, an increase of 41.9 per cent compared to July 2015 when it was $621,100.

In July, the benchmark price of townhouses was $408,200, an increase of 33.9 per cent compared to $304,900 in July 2015. The benchmark price of apartments also increased year-over-year by 24.9 per cent, going from $192,700 in July 2015 to $240,600 in July 2016.

BC's new 15% non-resident Property Transfer Tax another political fail

BC Government Stumbles Again with New Tax

The new residential Property Transfer Tax, which slaps an additional 15% fee on non-resident buyers, is yet another  misstep by the Clark administration. The idea is for the tax to limit foreign investment. In reality, it will fail to have any significant impact on foreign demand, meaning it can do nothing to improve affordability, but will instead end up hurting the innocent public in the process. This lame-duck legislation, which is intended only to affect Metro Vancouver real estate, once again demonstrates the provincial government’s inability (or unwillingness) to address the real root causes of BC’s housing affordability crisis, and their readiness to use the situation to enrich their own bottom line instead. I truly believe that this new tax is nothing more than a ruse to appease public concern over the problem of affordable housing, and to garner popularity prior to the next provincial election. Let me explain.

Recently, the provincial government released its own data showing that ONLY 5% of the residential property transactions in Metro Vancouver were purchased by foreign nationals, meaning that, by the government’s own admission, 95% of transactions would not be affected by the new tax. It’s important to realize, that 5% represents the full number of foreign national purchases counted prior to there being any effort to avoid the tax. It is very easy –– and perfectly legal –– for a non-resident purchaser to conduct a transaction under the name of a family member or business with resident status; it’s also plausible to assume some of that 5% will still make purchases despite the tax, therefore, post-implementation, we can expect the percentage of affected transactions to drop even lower than 5%.

The new tax is also supposed to help reduce Vancouver’s vacancy rates, another scapegoat touted as a significant contributor to skyrocketing prices. Yet, when we look at the recently released data, Vancouver’s vacancy rate of 7.2% is completely in-line with the overall average of Canadian metropolises which stands at 7%. Not only is there nothing unusual about Vancouver, but the vacancy of the city’s single-family homes, duplexes, and row houses specifically have remained static since 2002. The facts do not bear out the hype!

The government’s new measures are intended to make it look like they’re taking action to protect the public and address affordability, yet it’s nothing but smoke and mirrors. Take for example the numerous times over the last 10 years that REALTORS® have lobbied the government to make changes to the the Real Estate Services and Marketing Act in the interest of better protecting the public. Specifically, we asked for the power to charge stiffer fines and penalties for those agents contravening the act. Our requests were ignored; the government was apparently unconcerned. Now, when it’s politically advantageous for them to respond, suddenly they’re interested in doing something.

Another serious issue that causes me to question the government’s motives is the fact that when they rolled out this tax they failed to exempt current transactions on the books that have been confirmed (making them legally binding) but have not yet closed. I shudder to think of all the non-residents who did their due diligence and were approved for the purchase of their homes in Metro Vancouver according to all of the information available at the time, only to be slapped with a 15% tax that they didn’t budget for. Some serious questions have been raised about whether it is even ethical under NAFTA (North American Free Trade Agreement) and Canada’s Charter of Rights and Freedoms.

But this is not just tragic and enormously inconvenient for the non-resident Buyer. If they are put in a position to have to renege on their purchase due to a lack of necessary ready funds, causing them to lose their deposit in addition to their deal, it will also cause a disastrous chain of events for all contingent transactions. And most property sales are connected to contingent transactions. The effects could ripple out beyond the borders of Metro Vancouver and will end up punishing many innocent, law-abiding, tax paying citizens who did their legal due diligence and who may stand to face losing everything!! The effects are already being felt.

Writing in a provision to exempt current firm and binding contracts is a simple step the Clark administration could easily have taken, but they didn’t. This incredible oversight goes to show that they are not primarily motivated by a desire to protect the public.

I want to emphasize again, like I did in my critique of the similarly misguided response to the IAG report, that the two most important things that drive prices are SUPPLY and DEMAND. All that these new taxes will do is potentially curb minimal demand-- we’re talking about fewer than 5% of all residential transactions and only in the Metro Vancouver area. The law will not deter those non-resident purchasers who can take the legal steps to avoid the tax or those who can afford it. More importantly, the government has completely failed to address the lack of supply.

Nothing has been done to address the imbalance between our suppressed supply and our ever-increasing demand. Between 3,000-4,000 people move into the province every month and we simply don’t have places for them to go. There are a number of measures that could ease this problem in a meaningful way. For example, the government could release some land out of the ALR (Agricultural Land Reserve). Areas like Abbotsford, Chilliwack, and Langley are greatly restricted in the areas that they can develop because of the enormous tracts of land protected by the ALR. Also, they should create measures to fast-track construction permit approvals. Municipal offices are overwhelmed with permit applications and currently there aren’t any set deadlines for processing, meaning that they can take a prohibitively long time to process. There are plenty of other options the government could easily implement that could ease the pressure on prices, such as providing development incentives, improving transit to encourage the population to spread out, and increasing the density of existing residential areas. All of these measures would address the supply shortage, which is the central factor in our housing cost inflation. But no, all the Clark administration is capable of is tax, tax, tax! Can you see why I’m cynical?

Do you know anyone tragically impacted by these new measures? Tell us in the comments below!

Additional Property Transfer Tax on 

Residential Property Transfers to Foreign Entities 

in the Greater Vancouver Regional District 

Property Transfer Tax Act

NEED YOUR QUESTIONS ANSWERED: See attached link to July 2016 Tax Info Sheet from our BC Government!

http://www2.gov.bc.ca/assets/gov/taxes/property-taxes/property-transfer-tax/forms-publications/is-006-additional-property-transfer-tax-foreign-entities-vancouver.pdf