Over the last month, we’ve had the privilege of listening to some great discussions with our parent company’s president Gary Mauris on the current situation and the effects it will have on real estate and the economy with guest speakers including David Chilton, Darren Hardy, Phil Soper and Todd Duncan which we would like to share with you.
As the Government controls the financial path of the COVID-19 crisis, Evan Siddall, CMHC’s President, and CEO, has made some changes that will negatively affect all real estate transactions.
This is a CMHC initiative and it has left it open for other insurers/lenders to determine their own policy changes if any! Let’s hope that they will not follow the same path, however, in our experience, the same rules will be forthcoming.
These changes will place some first-time buyers out of the market or they will have to lower their expectations on the purchase price. With working from home being the new normal and the need for more living space and prices in the Waterloo & Wellington region being very affordable, the move from GTA to Kitchener Waterloo and surrounding areas should increase accordingly.
This will most likely spill over into the non-insured mortgage space and the Financial institutions will roll back their ratios accordingly, which will have a negative effect on refinancing, credit line limits, and stress on all borrowing associated with real-estate.
This may bring out other sources of institutional lending that will help fill the void and higher-priced private mortgages may become the go-to source for many people who do not qualify.
When we started the business in the ’80s, bank mortgage rates reached as high as 22%, B institutional rates were over 30% and the qualifying ratios were 32% & 42%, you could buy a single-family home for under $100,000 and unemployment reached over 10% for many years.
Today a 5 year fixed is at 2.75% range, new ratios will be 35% & 42%, average single-family is the $500,000 range, Unemployment (TBD) with the loosening of COVID -19.
I don’t know, which one would you rather be in?
At least now, we have the lowest rates in history, which will help keep the real estate market active. COVID-19 is the unknown factor and hopefully, we have turned the corner to bring some positive change.
Yesterday afternoon, CMHC announced changes to its mortgage insurance underwriting and acceptance criteria.
Effective July 1, the following changes will apply for new applications for homeowner transactional and portfolio mortgage insurance:
- The maximum gross debt service (GDS) ratio drops from 39 to 35
- The maximum total debt service (TDS) ratio drops from 44 to 42
- The minimum credit score rises from 600 to 680 for at least one borrower
- Non-traditional sources of downpayment that increase indebtedness will no longer be treated as equity for insurance purposes
You can read the full release HERE.
Please contact us for more information on how this might affect you.