A new $12 million listing. Multiple bids for a mouldy house. Record inventory. Slagging sales. Sellers who won’t budge. Buyers who resist buying. All in all, it’s been a weird year for NOTL real estate.
But now. Are we on the cusp of change?
Yeah, yeah, I know about Trump, tariffs and the big threat the Orange Guy poses to the Canadian economy, employment and our innate joie de vivre. But there are big housing developments politicians hope will stir your loins and make you write an offer.
Will they work? Should you (or your daughter) be taking advantage of new rules that Chrystia Freeland, our non-financial finance minister, says will make home ownership “far more affordable”?
Let’s review.
First, the price cap for insured houses is exploding higher, from a million to $1.5 million. Buyers of properties (to that limit) will be able to secure mortgage insurance through the Canada Mortgage and Housing Corporation.
Yes, that costs money — normally added to the debt. And, yes, the banks will give a better rate to buyers with insurance — since they’re the ones protected from losses (not the buyer). Mostly this is about a cheaper downpayment.
Currently to buy a place for, say $1.4 million, takes a downpayment of 20 per cent — or, $280,000. Ouch.
That’s because there is no insurance and a buyer must prove they have the financial means to purchase and carry the place.
But under the new rules, coming into play Dec. 15, that house can be insured, with less cash needed.
The requirement is five per cent of the first half-million and 10 per cent of the balance. In this example, that would total $115,000 — a savings of $165,000, or 59 per cent. Woo-hoo!
But wait. The house didn’t get cheaper. That $165,000 is added to the mortgage debt, which is now $1,285,000. To carry that at five per cent with a five-year term means monthly payments of $7,540.
With the old, higher down, the monthly would be $6,570. Over five years, you pay $58,200 more and at the end of the term, owe a remaining amount that is $141,800 higher. Oops. That “savings” of $165,000 just cost you $200,000.
But wait. Freeland also says first-time buyers can get 30-year mortgages, up from 25. Won’t that lower payments and make real estate great again?
Do the math.
Same house. Same price. Same lower downpayment. A mortgage amortized over 25 years (the current norm) costs $6,570 a month. With the period changed to 30 years, that payment drops to $6,064. It’s a saving of $506 a month — which sure looks appealing. Over 60 months, it equals a tad over $30,000.
However, during those five years, the 30-year borrower pays $4,300 more in interest and ends up owing an extra $36,500. So, to save 30 grand, you must spend more than 40.
In short, the changes to increase affordability are costly, cash-flow punishing, increase indebtedness and trick the financially illiterate (like the finance minister, apparently) into a false conclusion.
Further proof that the more diddling politicians do in the real estate market, the worse things get.
Oh, and there’s one more change that’s just been made. Existing homeowners with mortgages coming up for renewal won’t have to pass a stress test proving they can handle a higher monthly payment.
This is a big deal since 70 per cent of all mortgages will be coming due by the end of 2026. A slew of them were taken back in the pandemic days when home loans were two per cent or even less.
These folks will be facing seriously fatter payments, but now won’t have to prove their ability to pay. Why? So they need not sell a home they cannot actually afford.
The housing charade continues.
Garth Turner is a NOTL resident, journalist, author, wealth manager and former federal MP and minister.
