How Will the New Qualifying Rate Impact Buyers?

Short Version

Will the qualifying rate change the government is proposing fix runaway housing prices?

No.

Will it slow down the multiple offers and condition free craziness?

No.

Will it create a smokescreen of ‘doing something’?

Perhaps.

Long Version

The proposed changes target only those purchasing with 20% down or more.

Yes, that’s right – it restricts borrowing by the most well qualified group of buyers/borrowers.

No, it makes little sense.

How much restriction?

About 5% less borrowing power.

Which, given that the current stress test enacted January 1, 2018, reduced borrowing power by 35%, seems pretty minor.

And the impact will be minor.

It will have no effect on borrowers putting less than 20% down on purchases.

Fun Fact – No you don’t have to be a first time buyer to put 5% down.

Thus it will have little to effect on the market priced under 1 million dollars.

It also does not impact Credit Unions or many Mortgage Finance Companies, as the department of the federal government (OSFI), implementing this revision, holds sway over Banks specifically.

OK, so who will it slow down?

A few hundred, perhaps even a few thousand, middle class families in their early earning years.

Because exceptions will be made to this rule, in the special way that exceptions are made for those with a stronger net worth and some reserved on hand (IE people in their 50’s and beyond).

Essentially, a tweak to the rules like this does little else other than increase the gap in inequality, ensuring that the wealthy are unimpeded in their pursuit of real estate ownership and investment, but anyone in the up and coming lower to mid middle class… you are going to feel this slightly.

But again, it’s not anywhere near enough to address the runaway prices.

So why only one proposed tweak, and a minor one at that?

Because the pandemic has stripped away the illusions of a housing market driven by foreign investment, and the stress test further stripped away the illusion of ‘over-indebted Canadians’ borrowing more than they could afford… and so all the ridiculous distractions such as foreign buyers taxes, speculation taxes, and vacant home taxes have been used up and proven as worthless (as we in the know said they would be) at slowing prices.

Only one thing slows prices – and that is as simple as it is complex.

Increased supply.

Because try as they might, regulators cannot restrict demand for housing as long as we continue to have children and welcome much needed and economically vital immigration.

No, the only tools left now to fix this are in the toolbox labeled supply side.

And thus far, no level of government has wanted to open that toolbox, but somebody is going to have to step up and figure it out.

If China can build a 57 story highrise in 19 days, surely we can figure out how to build some four story wood frame condos in fewer than 5-7 years.

But here is the rub, this proposed qualifying change will once again not be grandfathered for those who purchased a pre-sale. So, the final note here – be extra cautious when purchasing pre-construction that you more than easily qualify and are not ‘just squeaking through’.

Because as little as this proposed (and almost certain to happen) adjustment will impact the overall market, it may have the power to impact your own personal situation significantly.

How close to the line are you?

Call your Broker and double check – Ask questions, lots of questions.