A lot happened in the past month -- more available homes for sale, increasing number of home transactions, strong growth in condo markets, and the introduction of the new mortgage rules.
Not sure how the new policies and the changes on the market will affect your home purchasing process? Here are some highlights for you to consider.
- Inventory is on the rise across the GTA, up over 78% compared to October 2016.
- The number of homes sold leaps up 12% from the month before, an above-average increase pointing to stronger autumn market conditions. However, it dropped 27% compared with October 2016.
- On a year-over-year basis, the average price of all housing types is held up at 2.3%, mainly due to strong growth in condo markets, up 21.8%.
- Industry insiders suggests that buyers are seeking to move up before January 1st 2018 when the mortgage stress-testing rules take effect.
1. Roaring inventory
If you've been shopping for houses recently, you may have noticed that inventory has gone up, meaning you will have more options on the market. Compared to October 2016, available listings rose 78% last month, resulting in 18,859 properties to be sold.
2. The impact of the mortgage stress-testing rules
The Office of the Superintendent of Financial Institutions (OSFI) introduced new guidelines for the mortgage industry earlier last month. According to OSFI, new rules, taking effect on January 1, 2018 now require a minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%.
Let's see how the rules would play out for a family with $100,000 in annual income. There are two scenarios based on the mortgage rate offered. Assume in both scenarios, the family would apply for a mortgage in a five-year fixed term and amortized in 25 years, with a 20% down payment, and that the current benchmark rate is 4.99%.
If the family is offered a mortgage rate of 2.80% today, they would be able to afford a home valued at $719,997. Since 2.80% plus 2% is smaller than the benchmark rate (4.99%), so the qualifying rate, starting from Jan. 1, is 4.99%, which means the family could only afford a home worth $573,248 in two months.
Let's say the current mortgage rate offered to this family is 3.01%. They could buy a home valued at $703,660. On Jan. 1, with the qualifying rate of 5.01% (i.e. 3.01% + 2%), the maximum value of the house they would be able to afford is approximately $575,000. According to industry group Mortgage Professionals Canada, this requirement would disqualify about one in five potential home buyers.
Here's an example of one area in Toronto showing varying changes in home values.
- Detached house prices in the W04 area rose 6.16% last month compared with the same month last year.
- Condo prices increased robustly. If you bought an average-priced condo valued at $272,191 last October, you would be selling at the average asking price of $359,688 a year later. In other words, you would have earned $87,497 from this condo unit by selling it today.
- Value of townhomes is slowly growing, up 3.59% from October 2016, making townhomes still an affordable option for professional couples and younge families.
- Despite the values of these three housing types increasing, semi-detached homes experienced a small decrease in values (i.e. 4.89%). For example, if you planned on buying a semi today, you would save about $31k compared to the same time a year ago.
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