As of January 1st, 2018, Canadian Mortgage Rules changed to require applicants to pass a stress test to prove that they could cope with a 2% interest rate increase before being approved. That means that prospective home buyers may have to settle for a less-expensive home or, as Erica Alini from Global News suggests, up to 50% of aspiring home owners will “give up on a home purchase.”
Before looking at the implication on the rental market, let’s take a closer look at what these rules mean for home buyers. This rule has already been in effect since Jan 2017 for buyers with down payments smaller than 20%, but now it effects everyone… for the most part. There are some exceptions (link here) but for the majority of people aiming for a $400,000 home, they might be looking at a minimum target price reduction of around 7%. This is the latest, of many, efforts by the Canadian Government to limit the amount of debt Canadians, and their financial institutions, can take on.
Now; on to the good stuff. These changes mean that many Canadians who were ready to buy are now going to be set back by a couple of years. For the moment, this is good news for landlords and investors. With vacancy rates finally starting to drop (down to 6% as of this quarter) we can expect to see an increase of rental prices and more renter competition in certain parts of the city as a result of these new rules.
If you’re thinking about selling a property, you might want to consider these market conditions and the implications they’ll have on the rental market. Considering the estimated 50,000 (!) home buyers that will be dissuaded, it might be in your best interest to seek out the services of a Property Management company (like Drummer Realty & Property Management!) to help you get the most out of your property. Don’t hesitate to give us a call, even for advice! 403-258-2424