When the latest round of mortgage rule changes went into effect this past summer, there was a lot of worry surrounding first-time homebuyers and how these rules would affect them. But that was several months ago, when prices were still skyrocketing and didn’t show any signs of slowing down. Now the rules have had their desired effect, hot markets are cooling, and prices are even starting to come back down.
The rules reduced amortization periods on insured mortgages to 25 years, down from 30. This greatly adds to the cost of the mortgage, not only because the homeowner must purchase costly mortgage insurance, but also because having 5 fewer years to pay off the mortgage can also add hundreds of dollars on per month.
So how affordable are homes for first-time buyers now?
Well if you were to ask those buyers that are on the market, or were before pulling themselves out of it, housing affordability in Canada is still not easily attainable. The reasons for that vary, but their largely attributed to the general housing market, along with the mortgage rules.
This is shown by a recent survey conducted by the Greater Vancouver Home Builder’s Association and the Homeowner Protection Office, the results of which are shown on the chart above. According to the survey, 36 per cent of respondents were putting off their first home purchase because prices are too high. And 19 per cent are delaying their purchase because they simply don’t have the funds to buy a home right now, probably largely in part due to the new mortgage rules. Only 12 per cent of those surveyed said that they were putting off a home purchase because of economic uncertainty.
But what might have first been unaffordable with the new rules may no longer be so. With prices dropping in several areas, this too brings the cost down of a mortgage, even though insurance and shorter amortization periods will still apply.
The Royal Bank of Canada has reported that home ownership has become more affordable for buyers; and the slight numbers they have released are only going to increase on the affordability scale.
As you can see from the chart above, all types of homes proved to be more affordable in the third quarter of 2012 when compared with the third quarter of 2011. While in some areas this affordability increase has only edged up slightly, in other areas there are dramatic differences – mostly with condos becoming more and more affordable within the country, and especially in super hot markets such as Toronto.
Throw in the fact that interest rates don’t appear to be going up anytime too soon, and those homes are only going to become even more affordable.
