By: Sarah Colucci, Sr. Mortgage Agent
The solution to rising real estate prices is to build a new supply of homes that would alleviate the inventory shortage currently tormenting potential buyers.
Red tape and extraordinarily long timeframes (try 9 to 21 months) to get construction off the ground significantly impede the creation of new homes, which inadvertently cause an imbalance of excess buyers and a limited number of properties for sale, thus artificially elevating prices.
New-home construction is under the control of both the provincial and municipal governments; therefore, the federal government can only act to create policies that help with affordability instead of getting to the heart of the matter, which involves expediting the creation of a healthy supply of residential homes.
The Liberals want to increase the maximum insured mortgage amount, presently capped at $999,999, to $1.25 Million.
Currently, any purchase price over $1 Million is not eligible for high-ratio mortgage insurance and would require more than the minimum downpayment (5% on the first $500,000 and 10% on the remaining balance not exceeding $999,999).
The proposed changes mean purchasers would only be required to put the minimum down payment on a purchase price of up to $1.25 Million, which is good news for those finding it difficult to save a downpayment of twenty percent or more.
However, instead of creating more opportunities for people to afford real estate, increasing the insurable mortgage amount may accidentally cause a further surge in prices since now, instead of requiring a downpayment of $250,000, purchasers will only need $100,000 if they are purchasing a home for $1,249,999.
The Liberals also promised to build 1.4 million "affordable" homes to mitigate the risks to Canadians that materialize when there isn't enough supply.
Does this change benefit Canadians?
The problem may not be the down payment per se but the purchase price and the payments associated with large mortgages. A more expensive house does not help with affordability but rather, may expose purchasers like first-time-home buyers to payment shock in the event interest rates rise.
On the other hand, those who previously couldn't get into the market for property priced between $1 and 1.25 Million may have a window of opportunity to finally do so while also getting the perks of insurable mortgage rates.
In theory, Liberals are helping with affordability, but they are also going to drive up the cost of the property, which may not add much-needed balance to the market over the long run.
Why Property Prices Will Continue Rising.
The market is still ultra-competitive. Even though fixed mortgage rates are set to rise, the variable rate is still historically low. If the maximum insurable mortgage limit suddenly increases, more buyers will flood the market, adding to the rivalry. And naturally, prices will increase.
Have a mortgage question?
Call or write.
Sarah A. Colucci, Sr. Mortgage Agent
Mortgage Edge, Broker 10680
Direct: (647) 773-4849
By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929