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Another round of mortgage tightening has homebuyers once more scrambling to close deals, and this could have pushed October home sales higher, economists suggest.
“The new mortgage rules announced by the federal government in early October likely juiced national sales as buyers rushed to get ahead of their effective dates,” writes Sal Guatieri, a BMO senior economist, in his analysis of the latest Canadian Real Estate Association’s monthly home sales data.
The number of homes changing hands in Canada was up 2.4 per cent in October compared to a month earlier, according to CREA. Transactions climbed 2 per cent from a year ago as the average price of a Canadian home hit $481,994, representing a year-over-year increase of 5.9 per cent.
Effective October 17th, insured mortgage applicants had to qualify for their loans against higher rates for longer-term, fixed-rate mortgages, BMO notes. Standardized eligibility requirements for low- and high-ratio mortgages are also on the horizon, slated to kick in on November 30th.
The latter measure applies to mortgages backed with portfolio insurance. It means even if a buyer puts down 20 per cent towards the purchase of a home, they will soon be subject to eligibility criteria that currently applies to more-leveraged borrowers.
In February of this year, the minimum downpayment for a government-backed mortgage increased to 10 per cent from 5 per cent on the portion of the loan between $500,000 and $1 million. In the months before the rule change, some observers expected Canadians to speed up their home-buying plans to avoid the added cost.
TD Economist Diana Petramala acknowledges in separate analysis that the latest measures could have had a similar effect on October’s sales tally, while also highlighting other potential factors at play.
“The pickup in housing demand across most housing markets in Canada (except for Vancouver) is largely consistent with lower interest rates and potentially a near-term boost in demand as homebuyers try to get into the market before being subject to new mortgage regulations,” Petramala writes.
She believes the full impact of new mortgage regulations may not be felt until the New Year.