A mortgage broker says Saskatchewan's housing market will be negatively impacted when the federal government makes changes later this month to bring in a new qualifying rate for mortgages.
These new changes on Oct. 17 will affect the market in Saskatchewan when it's not necessarily needed here, says Todd Kristoff, a Regina mortgage broker.
"We've seen a correction in the last four or five years," he said of Saskatchewan's housing prices.
"Industry professionals who will be honest with you will tell you our houses have down roughly five per cent in the last five years," he said.
The changes are coming as a response to houses selling well above asking price in cities such as Vancouver and Toronto. The federal government has attributed the high prices in those markets to foreign buyers.
There were three pending changes announced by Bill Morneau, federal finance minister.
The first two changes, dealing with properties over a million dollars and the buying and selling of properties by foreign ownership using a now-closed loophole, won't necessarily affect Saskatchewan, Kristoff said.
It's the third change that will affect people, he said.
What used to be the stress-test is now the rate prospective home owners will pay, according to him.
The qualifying rate of a mortgage has been 4.64 per cent, which is the percentage of a mortgage people needed to be able to afford to qualify.
"You have to be able to afford that mortgage at 4.64 per cent, not the contract rate that you're getting, not the rate you end up paying," Kristoff said.
He said if people could afford their mortgage at the qualifying rate, then applicants could get a smaller rate at 2.2 per cent as an example.
"So, now, across the board, you have to afford that house at 4.64 per cent. So, that really limits your buying power."
Kristoff called the changes great for people looking to buy a home in the next few years, even if 10 to 15 per cent of potential buyers are taken out of the market.
Those people who just bought their house, however, could see the worth of their home decrease by five to 10 per cent in the next five years.
Priced out of the market
Kristoff used the example of a couple fresh out of university, making a combined household income of $75,000:
- They have some student debt, but not a lot of outside consumer debt.
- Under old rules, could have afforded a house in the $400,000 to $425,000 range.
- Under new rules, may be able to afford a house in the $315,000 to $320,000 range.
- With a $425,000 home, you needed to be able to afford 4.64 per cent, $1,972.
- If you could afford that, then you might get a rate of 2.2 per cent, $935.
Buying power is reduced by 10 to 15 per cent if they make a down payment of less than 20 per cent of the total mortgage, he said.
"If you buy a house with less than 20 per cent down, it's insured," Kristoff said. The insurance would be paid for by Canadian Mortgage and Housing Corporation or Genworth, for example.
Now, 50 to 55 per cent of mortgages which are now insured would not qualify under the new rules, Kristoff said.
"So that's 55 per cent of Canadians could not afford the house they're living in after the 17th. So they're lucky they bought it when they did," he added.