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Local builders find tighter mortgage rules tough to swallow

Tighter mortgage rules announced recently by Federal Finance Minister Jim Flaherty may be the right medicine for Toronto’s and Vancouver’s feverish condo markets.

Tighter mortgage rules announced recently by Federal Finance Minister Jim Flaherty may be the right medicine for Toronto’s and Vancouver’s feverish condo markets. But they’re not something Dan Ouwehand would have prescribed for Alberta.

“This is an awfully blunt tool to try to fix the problem,” said Ouwehand, past-president of the Central Alberta branch of the Canadian Home Builders’ Association. “It affects not just the people you’re targeting but everybody along the whole spectrum.”

Effective last week, borrowers can now use only 80 per cent of their property’s value as collateral for home-equity loans, down from 85 per cent. The maximum amortization period for government-insured mortgages has dropped to 25 years from 30, and government-backed mortgage insurance is no longer available for homes with a purchase price of more than $1 million.

Ouwehand said a consequence will be that first-time home-buyers will find it harder to enter the market. But, he added, repeat buyers at higher price levels will also be impacted.

“It shifts the whole affordability scale to the higher range.

“For every home buyer, this represents a decrease in what they can afford and the house they can get.”

Markets in a few big cities might need a bit of cooling, but that’s not the case in Alberta, said Ouwehand. There are no indications of a housing bubble forming here.

Instead, the increased barriers for aspiring home-buyers will force them to remain in the rental market and compete with newcomers to the province — competition that will lower vacancy rates and boost rents.

“It has a different effect on us than the intended effect on the markets that they were concerned about — and certainly not a positive effect,” said Ouwehand.

Tracey Christensen, president of the Central Alberta Realtors Association, agreed that the new rules were likely prompted by concerns about hot housing markets elsewhere. But she appreciates efforts to guard against price runs.

“I think these irrational inclines in property values hurt consumers.”

Christensen doesn’t think the new limits will have a big impact on the local resale market.

“Typically speaking, we don’t see people buying up to the max that they can afford anyway.

“I think it’s going to be OK.”

In fact, she added, recent Multiple Listing Service statistics suggest a new cycle of growth.

“We have a strong job market, we’ve got higher income, we are seeing a rise in capital investment.”

This should make it easier for people to save for the down payment on a home.

Higher rents, suggested Christensen, should make home ownership more attractive, relative to renting.

“The carrying cost of renting versus owning isn’t as great anymore.”

Christensen thinks some prospective home buyers rushed to complete deals prior to the new rules taking effect.

“I was talking to some mortgage brokers who were experiencing that.”

Ouwehand said the Canadian Home Builders’ Association’s national president has written Flaherty, and the provincial body is also lobbying government on this issue.

The Canadian Home Builders’ Association has estimated that the changes equate to nearly a one percentage point increase in mortgage rates.

Meanwhile, a BMO Bank of Montreal survey found last week that nearly half of Canadians are unfamiliar with the new rules. But 14 per cent of prospective home buyers are now less likely to buy a new home in the next five years, 41 per cent of those who still plan to buy are likely to spend less, and 45 per cent expect they’ll now take out a smaller mortgage.

hrichards@www.reddeeradvocate.com