CMHC Changes - Impact on Investors

[bizaro86]

The CMHC announced a number of changes, including:



1. Amortizations reduced to 25 years

2. Refinancing limited to 80%

3. Properties purchased at over $1 million no longer eligible for mortgage insurance

4. GDS and TDS set at 39% and 44%

5. HELOCs limited to 65%



Some of these will have more impact on investors than others. Obviously going to 25 from 30 reduces cashflow slightly, and HELOCs limited to 65% could reduce sources of downpayment. It'll be interesting to see how much grandfathering is done with existing HELOCs, and whether banks let borrowers switch them to an amortizing product without requalifying.



In terms of number 3, I'm curious to know if that applies to multi-unit properties as well. Because if so that's a huge change to the apartment sector, and would probably hurt prices as funding gets more expensive. If it's only single family dwellings then it will mostly affect luxury home buyers.



Michael

 

[Thomas Beyer]

I think these prudent changes will have only a MINOR impact, as it affects only CHMC insured mortgages. Banks can still lend up to 80% and can set the amortization at 30,35 or even 40 years. Less than 15% of Canadian mortgages are actually high ratio.



It is actually beneficial for existing landlords with as the pool of renters will increase !



It will curb the insane desire to own a house at any price at any age with a low income.



I think these gradual changes in the mortgage rules over the last 4 years are very prudent public policy and will have only a very minor impact on real estate investors. Multi family is rarely more than 25 year amortization and the current policies are already so conservative that these new changes will have no impact there whatsoever, plus I think that the $1M threshold is not for multi-family properties.

 

[cagoodrow]

Thomas makes a great point and I think summarizes what the impact this will have on the well read investor.



When I first read the headlines, as someone who is new to real estate investing, I was upset because I thought it would make cash flowing properties more challenging. As the day went on and I continued reading, I was relieved to hear this only applied to CMHC insured mortgages. It's unfortunate for first time home buyers, making it slightly more difficult to get into their own place...but the businessman in me smiles because those are my clients, and they will likely need to rent a little longer.



Chris.

 

[housingrental]

From my other post below - to add real estate is not just fundamentally driven, psychology matters, the end is near. The fundamentals suck - and with more frequent media coverage the average Canadians perspective is changing.



The government has been getting stories out in the media for a long time warning Canadians

There's been over the last two years, and now more yesterday, action behind the talk

Betting against the government is not the best strategy



What is likely:

Reduced sales leading to reduced prices over times

It's the beginning of the end of many bubble's

 

[Thomas Beyer]

[quote user=housingrental]It's the beginning of the end of many bubble's
What bubble ?



Prices are a function of supply and demand. Toronto has a greenbelt, thus single family houses in the greenbelt go up in value, due to in-migration and robust economy in GTA. Some towns have job losses and demand goes down as do house prices. Some area in W-Canada and some ON pockets have strong to very strong job growth and thus: more demand for housing thus increasing prices.



Some people even argue that Toronto's condos will all be absorbed due to robust economy and in-migration of around 100,000 new people every year into GTA.



It's the economy, stupid.



Not the minor tweaking of CMHC rules back to prudent 2002 level.



Follow the jobs and your real estate investments will do just fine !

 

[housingrental]

In most markets:



Valuation growth has advanced at multiples the rate of income growth



This has been from:



Increased access to credit



Lower interest rates



Cultural change - increased belief in desirability of real estate as an investment and costly finishing materials - portion of properties owned as investment / second homes have increased



Thomas - Would you agree with these three factors? Would agree that they are changing in the opposite way?

 

[Thomas Beyer]

[quote user=housingrental]Thomas - Would you agree with these three factors? Would agree that they are changing in the opposite way?
Of course !



But also: invest money in the stock market ? I rather own a nice asset I live in instead.



Baby boomers looking for safe returns or leave cash in the bank .. so why not lend it out at 3 to 4% .. great business for many banks !



The risk is lower wages in some towns, layoffs in both teh public and private sector, and inflation over and above income growth.



So real estate as an investment still makes sense in many places, but not all, or certainly not in bigger homes as "rental properties". However, these latest rule chnages will actually INCREASE demand for smaller houses, the majority of homes REIN members own. It will also help existing house owners that rent their place (aka REIN members) as there will be more demand from renters that might just forgo that new house purchase for a year or 2 to save the extra $.



Overall a good move.



I'd like to see further CMHC tightening, namely restriction of the 5% down to first time home buyers only, and a gradual ratcheting it up to 10%, perhaps over 3 or 4 years, say 7.5% down by 2014 and 10% down by 2016.