The federal government is attempting to take some momentum out of the country’s most expensive — and frothiest — housing markets in Vancouver and Toronto, announcing Friday changes to mortgage lending rules that lift minimum down payment requirements on homes listed between $500,000 and one million dollars.
At a press conference in Ottawa, Finance Minister Bill Morneau said that as of Feb. 15, buyers purchasing homes in that price range will have to make a minimum down payment of 5 per cent on the first $500,000, and 10 per cent of the dollar value above that amount.
Morneau used the example of a $700,000 home, which will now require a minimum down payment of $45,000, or an increase of $10,000 above what the existing minimum of 5 per cent would require.
“By targeting higher priced homes, we’ll minimize the impact on first time buyers,” the minister said. “This protects all homeowners, including middle class Canadians whose biggest investment is in their homes.”
Benchmark home prices in Vancouver and Toronto have rocketed higher this year amid ultra-low borrowing rates and sustained interest from foreign buyers, experts say. Each city’s boom has led to market dynamics in those centres that are “not as stable as they should be,” Morneau said.
“The motivation of the [new] policy is clear,” Benjamin Tal, economist at CIBC Economics said. “The attempt is to slow down the only two markets that are really moving (Toronto and Vancouver). Those markets happen also to be the most expensive.”
How effective the new minimums will be in cooling off those markets isn’t clear — the finance minister said the change would affect “one percent or less” of borrowers.
Fears over a possible real estate bubble in the Vancouver and Toronto areas have risen significantly as prices have surged.
In November, benchmark prices in Vancouver surged 17.8 per cent as sales soared 40.1 per cent, the region’s real estate association said.
In slightly tamer Toronto, benchmark prices increased 10.3 per cent as sales climbed 14 per cent compared to November a year ago, making 2015 the most active year on record for the country’s biggest housing market (eclipsing 2007).
The Vancouver and Toronto markets have firmly decoupled from the rest of the country, where home prices are moving at a far slower rate of about 2.5 per cent, according to CREA, the national real estate board.
What’s fueling the torrid price gains remains a matter of fierce debate, but many suspect a wave of foreign cash is playing a key inflationary role. Rock bottom interest rates are also continuing to fuel domestic demand.
“An influx of foreign wealth is one driving force, but lower interest rates — and the witches’ spell of forever-low rates—are also stirring the pot,” Sal Guatieri, economist at BMO, said in a recent note.
Source: Jamie Sturgeon, Global News