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CMHC takes a bite out of purchasing power
While forecasting a collapse in house prices of as much as 19% over the next 12 months, Canada Mortgage and Housing Corporation is tightening the rules for its mortgage insurance.
As of July 1st, applicants will need a bigger credit score, a smaller debt load and more, real money up front for CMHC insured mortgages. It could be seen as an effort to squelch any growth in demand triggered by improved affordability.
It is important to note that these changes are not Federally mandated and there are two private mortgage insurers available, Genworth and Canada Guarantee, that have not made any changes. To date Banks and Mortgage Lenders have not made any changes and continue to select the appropriate Insurer for approval.
CMHC is upping its credit score to 680 from 600. In an effort to reduce the practice of borrowing money for a down payment the agency will no longer treat unsecured personal loans and unsecured lines of credit as equity for insurance purposes. The maximumgrossdebt servicing ratio (GDS) is being trimmed to 35%, down from 39%. The maximumtotaldebt service ratio (TDS) falls to 42% from as high as 44%.
The reduction in debt servicing levels is seen as having the biggest impact on home buyers. By some calculations a household with an income of $100,000 and a 10% down payment could lose as much as 12% of their purchasing power.
The head of CMHC, Evan Siddall, has made no secret of his concerns about excessive [housing] demand and unsustainable house price growth.
COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians, Siddall said in a press release.
These actions will protect home buyers, reduce government and taxpayer risk and support the stability of housing markets, he said.
Many market watchers are calling the moves excessive and say CMHCs forecasts are unduly pessimistic. They worry the new rules will batter the confidence of buyers and sellers, bruise market psychology and hurt the near-term housing outlook.
CMHC did decide to leave the minimum down payment size at 5%, which should keep the pool of potential buyers at about the same level.
First National Financial LP
Employment continues to rebound in July
From February to April, 5.5 million Canadian workers were affected by the COVID-19 economic shutdown. This included a drop in employment of 3.0 million and a COVID-related increase in absences from work of 2.5 million.
Employment rose by 419,000 (+2.4%) in July, compared with 953,000 (+5.8%) in June. Combined with gains of 290,000 in May, this brought employment to within 1.3 million (-7.0%) of its pre-COVID February level.
The number of Canadians who were employed but worked less than half their usual hours for reasons likely related to COVID-19 dropped by 412,000 (-18.8%) in July. Combined with declines recorded in May and June, this left COVID-related absences from work at just under 1 million (+972,000; +120.3%) above February levels.
By the week of July 12 to July 18, the total number of affected workers stood at 2.3 million, a reduction since April of 58.0%.
Canadian home sales and new listings up again in June
Home sales recorded over Canadian MLS Systems in June 2020 rebounded by a further 63%, returning them to normal levels for the month some 150% above where they were in April.
Transactions were once again up on a m-o-m basis across the country. Among Canadas largest markets, sales rose 83.8% in the Greater Toronto Area (GTA), 75.1% in Montreal, 60.3% in Greater Vancouver, 99.7% in the Fraser Valley, 54.9% in Calgary, 59% in Edmonton, 22.5% in Winnipeg, 34.8% in Hamilton-Burlington, 67.9% in London and St. Thomas, 55.6% in Ottawa and 43.6% in Quebec City.
Actual (not seasonally adjusted) sales activity posted a 15.2% y-o-y gain in June.
REALTORS across Canada are increasingly seeing business pick back up, stated Costa Poulopoulos, Chair of CREA. With sellers and buyers returning to the market, we continue to make sure clients stay safe by complying with government and health officials directives and advice, increasingly using technology to list and show properties virtually while providing secure methods to complete required forms and contracts. As always, but maybe now more than ever, REALTORS remain the best source for information and guidance when negotiating the sale or purchase of a home, continued Poulopoulos.