It’s no secret that home buyers have shied away from activity in the housing market. Home sales have dropped almost every month since new rules were put into effect last July, and right now many of those buyers are just waiting with baited breath for prices to start dropping along with those sales. But those looking for their dream home aren’t the only ones who are hesitant to dip their toes into today’s Canadian housing market – first-time investors are too!
According to the March Consumer Credit Trends Report, HELOCs (home equity lines of credit) have dropped in growth – and they’ve dropped significantly. This report says that there was “very moderate growth in lines of credit and HELOCs likely due to housing market speculation and increased regulation.”
That rise was moderate indeed, with HELOCs being worth about $242.5 billion in March 2012, yet only $250.6 billion for March 2013. This “moderate growth” means that HELOCs have only increased by 3.3 per cent.
So why the reason for such a small jump?
One reason is because of the new rules that Finance Minister Jim Flaherty imposed on HELOCs last July. Now, only the best qualified borrowers can take out these types of secured loans, and when they do they can only borrow up to 65 per cent of the equity they have in their homes.
Another, large reason though, is because HELOCs are the most-used purchasing and borrowing vehicle of investors. And with the housing market cooling, the new HELOC guidelines, and a confusing application process, investors simply aren’t interested.
The overstock of condos in Toronto and other major city centres has really tamped down interest that investors once showed in these. The simply truth is that condos have gotten a somewhat bad rap over the past couple of years, and buyers simply aren’t scooping them up as they once did. Investors know that, and so they’re often shying away from purchasing these units as investment properties.
But in addition to this new distaste for condos, investors also don’t want to go through the lengthy process of applying for a HELOC. In order to do so, and make it worthwhile for themselves by being approved for more than 65 per cent of equity, brokers are using creative strategies.
One of those is to use certain HELOC products that allow you to combine variable and fixed terms, which can allow investors to borrow up to 80 per cent of equity. However, that may be too much fine print, and a process that’s too complicated, for most investors. And until more interest is shown, we may just have to be patient in waiting for those investors to come back.