First time buyers have more hurdles to jump than Donovan Bailey

By Lindsay Smith/Columnist

In 2012, the average detached home in Oshawa was 275,100. Currently, homes are selling for $591,000.

In 2017, the Federal government introduced a “stress test” which affected the borrowing ability of local buyers downward by about $100,000. Alas, Canada Mortgage and Housing Corp (CMHC) is again making changes that will impact first time buyers’ ability to purchase homes. Starting July 1, CMHC is lowering the amount a buyer can spend on mortgage payments to 35 per cent of gross incomes from the current 39 per cent. This four per cent sounds like a small reduction, but when applied, it has a dramatic effect on borrowing.

To purchase a home for $591,000, the minimum down-payment would be five per cent, or about $30,000, leaving a mortgage of about $561,000. This would require a combined family income of $89,500. Under the new current rules, the buyers would need an income of $100,000 to qualify for the same mortgage. Knowing that most buyers cannot magically create more income, it would drop the price of a home they could afford to around $561,000. This is huge. Another change that CMHC is introducing is to increase the credit score to 680 from 620. This means that if a buyer has had any missed credit payments it may exclude them from qualifying period.

The reasoning behind these changes is that the president of CMHC is forecasting real estate values to drop from 9 to 18 per cent over the next 12 months. Last week, I made a comment about my “crystal ball” not being an effective way to forecast what will happen in real estate. When a government agency makes a bold statement such as this, it tends to send a shock wave through the marketplace. How accurate have they been? Last year CMHC forecasted 20,000 first time buyers would use the new federal first time buyer incentive in the first six months. There were under 3,000.

If you are a buyer, you have several alternate options to help you buy a home, allowing purchases with less than a 20 per cent down-payment: Genworth and Canada Guarantee. Both companies commented they have no plans in changing their policies that mirrored what CMHC used prior to making their changes.

The reasoning behind these changes are to “avoid exposing young people, as well as taxpayers… from falling home values.” The forecasts are nation-wide and have little to do with markets like we have in Oshawa. We are at a time where Oshawa has so few homes for sale that we are seeing more than 40 per cent of the sales last week sell for full price or for more than asking. A classic sellers market where the average detached home increased over $20,000 in the past month alone.

The best course of action if you are a buyer is to work with a full time, local realtor and a mortgage broker. Explore the many options available to you, and make the choice to purchase one based on professional advice and research. My crystal ball tells me that a year from now the average prices will make homes selling today look like bargains.

These are uncertain times filled with many conflicting messages and stories.

If you have questions or see a real estate emergency on the horizon, I can be reached at lindsay@buyselllove.ca.

Lindsay Smith Broker

Keller Williams Energy Brokerage