Home buying affordability fades for millennials with new mortgage rule (with VIDEO)

Federal move slashes purchasing power of first time buyers by up to 20 per cent: economist

Home buying affordability fades for millennials with new mortgage rule (with VIDEO)




Millennials trying to buy their first homes face a dramatic hit to the amount they can borrow as a result of the federal government’s move to tighten mortgage qualification rules later this month.

That’s the warning from B.C. Real Estate Association chief economist Cameron Muir, who says the federal finance minister’s announcement Monday flies in the face of government efforts to improve housing affordability at the low end of the market.

“It’s going to have a dramatic impact on affordability for millennials,” Muir said. “As much as 20 per cent of their purchasing power has been eliminated. Many of them will be squeezed completely out of the marketplace.”

READ ALSO: Feds target housing market speculators

Effective Oct. 17, buyers with less than a 20 per cent down payment – most first time buyers – will need enough income to qualify at a higher benchmark interest rate posted by the Bank of Canada, even though their actual payments are based on the lower rate retail banks offer them.

Right now the gap between the two rates is around two per cent, so the rule is equivalent to a sudden interest rate spike of that amount for many buyers.

Muir said a couple with combined annual income of $80,000 and a five per cent down payment can currently buy a home priced at about $500,000.

“That’s going to fall to about $400,000,” he said. “That’s a $100,000 reduction in their purchasing power. That’s a substantial hit to affordability.”

It’s the sharpest government-imposed cut to what new home buyers can afford in years, he said, predicting millennials will bear the brunt.

“Unlike previous generations, their purchasing power has now been reduced through government policy.”

Finance Minister Bill Morneau unveiled the change as one of a series of measures to reduce risk in overheated housing markets.

Muir argued the mortgage qualification rule could have been phased in gradually.

“The shock over a number of years wouldn’t be the same shock we’re now going to see in the markets.”

He said the change threatens to have broader impacts, potentially triggering a drop in home construction activity, associated jobs and economic growth.

Helmut Pastrick, chief economist for Central 1 Credit Union, said he expects some drop in sales to first time home buyers as a result.

First time buyers account for a larger proportion of sales in more affordable regions like the Fraser Valley and Okanagan – up to 35 per cent – compared to around 25 per cent near Vancouver.

Unlike the foreign buyer tax B.C. has imposed only in Metro Vancouver, Pastrick said the federal mortgage qualification change is “indiscriminate” and applies everywhere, even where overheated real estate has not been a problem.

“It will ripple out beyond the first-time home buyer market,” Pastrick said, adding existing owners seeking to sell or downsize are often dependent on a first-time buyer purchasing their home.

Pastrick is in the process of scaling down Central 1’s forecasts for real estate market and B.C. economic growth for 2017 as a result of the mortgage rule change.

He expects a five per cent decline in benchmark home prices over the next six to nine months, coupled with lower sales.

But Pastrick predicts the real estate market will stabilize over time, not collapse.

“Markets will adjust –this is not the beginning of the end of the cycle,” he said, citing the strong trends of growth for B.C.’s economy, jobs and population.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Teacher Casey Stowe and Principal Wendy Cutler from Twin Rivers Elementary with the donation. Photo: submitted
Castlegar school receives $2000 donation

Twin Rivers Elementary School will use the donation to enhance the school community.

COVID-19. (Image courtesy CDC)
Interior Health reports 70 new cases overnight

The total number of cases in the region is now at 1,426

Black bear feasting on mountain ash berries, a natural food source in the fall in the Castlegar area. Photo: submitted
Castlegar WildSafe received 144 reports of black bears this season

Submitted by WildSafeBC Castlegar A few bears continue to make a lasting… Continue reading

An employee of the Adventure Hotel was taken to hospital on Nov. 20 after she confronted a customer of Empire Coffee about not wearing a mask. File photo.
Nelson hotel employee suffers heart attack after being assaulted in anti-mask incident

An accountant at the Adventure Hotel is in hospital in Kelowna

RCMP pictured at a motor vehicle incident during snowy conditions. (Phil McLachlan - Black Press Media)
Fruitvale woman charged with impaired driving in 2019 crash that killed 2 teens

A 15-year-old boy and 18-year-old woman, both from Fruitvale, died in the crash that sent the vehicle into the river

A man wearing a face mask to help curb the spread of COVID-19 walks in downtown Vancouver, B.C., Sunday, Nov. 22, 2020. The use of masks is mandatory in indoor public and retail spaces in the province. THE CANADIAN PRESS/Darryl Dyck
B.C. records deadliest day of pandemic with 13 deaths, 738 new COVID-19 cases

Number of people in hospital is nearing 300, while total cases near 30,000

Join Black Press Media and Do Some Good
Join Black Press Media and Do Some Good

Pay it Forward program supports local businesses in their community giving

Cannabis bought in British Columbia (Ashley Wadhwani/Black Press Media)
Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

FILE - This May 4, 2020, file photo provided by the University of Maryland School of Medicine, shows the first patient enrolled in Pfizer's COVID-19 coronavirus vaccine clinical trial at the University of Maryland School of Medicine in Baltimore.  Pfizer announced Wednesday, Nov. 18, 2020, more results in its ongoing coronavirus vaccine study that suggest the shots are 95% effective a month after the first dose. (Courtesy of University of Maryland School of Medicine via AP, File)
VIDEO: B.C. planning for the rollout of COVID-19 vaccines in the first weeks of 2021

The question of who will get the vaccine first relies on Canada’s ethical framework

This undated photo issued by the University of Oxford shows of vial of coronavirus vaccine developed by AstraZeneca and Oxford University, in Oxford, England. (University of Oxford/John Cairns via AP)
Canada can make vaccines, just not the ones leading the COVID-19 race

Canada has spent more than $1 billion to pre-order seven different developing COVID-19 vaccines

British Columbia Premier John Horgan speaks during an announcement about a new regional cancer centre in Surrey, B.C., on Thursday, Aug. 6, 2020. Horgan is set to introduce his NDP government’s new cabinet Thursday. THE CANADIAN PRESS/Darryl Dyck
Horgan’s NDP cabinet built to tackle pandemic, economic recovery, says former premier

Seven former NDP cabinet ministers didn’t seek re-election, creating vacancies in several high-profile portfolios

The COVID-19 test centre at Peace Arch Hospital is located on the building’s south side. (Tracy Holmes photo)
B.C. woman calls for consistency in COVID-19 post-test messaging

‘Could we just get one thing straight?’ asks Surrey’s Deb Antifaev

(File photo)
Alberta woman charged after allegedly hitting boy with watermelon at Okanagan campsite

Police say a disagreement among friends at an Adams Lake campsite turned ugly

Court of Appeal for British Columbia in Vancouver. (File photo: Tom Zytaruk)
B.C. woman loses appeal to have second child by using late husband’s sperm

Assisted Human Reproduction Act prohibits the removal of human reproductive material from a donor without consent

Most Read