Analyzing years of mortgage rule impact

The most recent mortgage rule changes have had a much smaller impact on the market than previous policy changes and there’s a simple explanation for that, according to a new report.

The most recent mortgage rule changes have had a much smaller impact on the market than previous policy changes and there’s a simple explanation for that, according to a new report.

There has been an unprecedented number of housing policy changes over the past year-and-a-half, according to TD Bank, and each has been aimed at tempering housing demand.

And while the industry viewed the last round of changes as particularly invasive, they have proven less impactful than previous iterations.

“Each successive regulation change at the federal level has left a smaller mark on home buying activity. Our estimates suggest that the most recent federal rule changes may have only shaved 2% off demand nationwide,” TD Economists Beata Caranci and Diana Petramala, wrote in their latest report, Canadian Regional Housing Outlook Navigating a Soft Landing. “In contrast, the first regulatory changes implemented in 2008 dampened home sales by roughly 10%. That policy increased the required down payment from 0% to 5% for insured borrowers and lowered the allowable amortization period from 40 years to 35 years.”

The reason for dwindling influence, according to the economists, is that each round of mortgage rule changes has specifically targeted borrowers who require mortgage insurance.

“This incented a shift away from high loan-to-value mortgages into conventional mortgages,” the economists wrote. “New loans that require homebuyer’s insurance now account for less than 20% of all new chartered bank mortgage originations, compared to 40% prior to 2008. So, each round of policy changes has targeted a shrinking share of the overall market.”

The Bank of Canada claims insured mortgage originations fell 43% in 2016 and early 2017 from the peak in late 2015.

However, that shrinking share was up by a growing number of Canadians relying on conventional mortgages.

Looking forward, it seems federal policymakers aren’t quite finished with their market tinkering.

The Office of the Superintendent of Financial Services (OSFI) has proposed additional rules in the form of income tests for all borrowers at a rate of 2% higher than the contracted rate.

And that policy is expected to temper housing demand even further.

“ … if the new measures are put into place, which will cause buyers in the former group to adjust their behaviour by coming up with a bigger down payment, opting for a lower priced purchase, scaling back other debt, or delaying a home purchase altogether,” the economists wrote. “In the year of implementation, we estimate that this new rule could depress demand by 5% to 10%, and shave 2% to 4% off of our current forecast for the average price level in 2018. This will be yet another force limiting price growth in the future.”

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Influx of migrating Canadians could lead to big bucks for investors

One market’s woes could mean good fortune for investor’s in another major market, according to one industry veteran.

Real estate professionals are bullish on the Toronto market for investors this year, as savvy buyers could cash in on troubling times in western Canada.

“Toronto will definitely be a good spot for investors this year; I was just talking with a broker from another office about this and we think many people who currently live in Alberta will look to move to Toronto,” Ira Jelenik, an agent in Toronto, told REP. “A lot of those people will look to the rental market and prices in both freehold and condos will go up this year.”

That potential influx would just add to the always growing number of Torontonians.

“Along with immigration, a lot of people will be migrating from other provinces,” Jelenik said.
The oil industry taking its fair share of beatings last year, with many people out of work and struggling to cover the cost of rent or mortgage. The trend is expected to continue – and its one that has had a very real impact on the real estate industry.

In late November it was reported that agents in Fort McMurray were leaving the city in droves.
Phil Soper, chief executive officer of Royal LePage Real Estate Services, told the National Post at the time that Fort-McMurray based agents are leaving the area in hopes of taking advantage of markets that haven’t been hit as hard as the capital of oil country.

“Our offices in Edmonton are experiencing a transfer of agents from Fort McMurray and you’d expect that, because the region is experiencing the most severe change in economic fortune in Canada in years,” Soper told the Post.

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Titan Equity Group placed in receivership

Titan Equity Group and its CEO, Lance Kotton, are under investigation by the Ontario Securities Commission, with the company head also fending off allegations he misappropriated investor funds.

No charges have in fact been made or those allegations yet proven in court.

The OSC alleges that Kotton used investor’s funds to purchase a home, luxury cars, and pay himself “excessive” management fees.

An Ontario Superior Court of Justice placed Titan in receivership at the behest of the OSC on November 16.

An OSC-issued temporary cease-trade order against Titan and its CEO has been extended to December 17.

There are allegations of personal enrichment. There are excessive management fees of more than a million dollars,” The OSC alleges in a court filing. “A court-ordered Inspector discovered payments over a million dollars towards personal credit cards and vehicle expenses of $600,000 in an 18month period.

“There are no audited statements for 2014, no 2015 interim internal statements, and no corporate tax returns for any fiscal years.”

According to court documents, Titan has raised $30.7 million from 335 different investors since 2011.

The OSC alleges Titan engaged in unregistered trading; illegal distributions; misappropriation of investor funds; and giving misleading statements to investigators. Again, no charges have yet been laid.

Kotton contacted the Star to share his side of the story.

“They’ve taken my office. They sent a receiver to itemize every item in my home,” he told the publication. “They’re trying to liquidate everything before I have a (chance) to prove myself.”

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

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