New Rules - Lower Prices?

[Pump]

well when these new rules go into effect... since it will be harder for most investors to get a mortgage without significant down payment (min 20%) won`t that take a good number of people out of the buying pool. So with less people bidding and with the real issue of higher interest rates being factored into everyone business models... won`t that mean lower prices for rental properties after the new rules hit in April.

so if i have 20% down and my business model is not about leveraging to the max, wouldn`t it make sense to wait until after the rules go into effect in April to buy since prices can only go down.

 

[Esaum]

Hi,

My perspective on this issue is that Investment properties can be valued by there income potential. When you consider more people will be renting (raising rental prices), this should in theory help raise income property`s value. Combined with the lower demand for income properties, I believe it should level out.

Perhaps the initial reaction will be the lower property prices because the demand will simply cut overnight(nearly after mid-April), and rents will slowly rise to even out, since it would take much longer for rents to rise.

Eric

 

[magoomba]

I don`t think this is necessarily bad for the long term investor.
Yields may start getting better.

 

[VicChung]

QUOTE (magoomba @ Feb 18 2010, 02:48 PM)
I don't think this is necessarily bad for the long term investor.

Yields may start getting better.






I remember REIN mentioning that the investment community forms only 4% of the buyers which means 96% are homeowners.



Do the new rules affect homeowners? If the homeowners are not impacted, then prices should be resilient.



The question is can homeowners still buy a property at a 5% downpayment?

 

[Thomas Beyer]

QUOTE (VicChung @ Feb 18 2010, 04:31 PM)
I remember REIN mentioning that the investment community forms only 4% of the buyers which means 96% are homeowners.



Do the new rules affect homeowners? If the homeowners are not impacted, then prices should be resilient.


minimal impact as most home buyers are not investors !



These new regulations will provide a less levered consumer, a slightly cooler house price growth and a more cautious borrower.



More specifically, CMHC announced the following changes on Tuesday, Feb. 16, 2010 :

` Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.

` Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. This will help ensure home ownership is a more effective way to save.

` Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.



This will mean more people will chose to rent a while longer as they may not qualify for new mortgages.



I think Flaherty could have gone the extra step and requiring a minimum 10% down payment as many people are too stretched with 95% mortgage, plus CMHC premium, i.e. essentially homes with 0 equity in them.`



If you wish to live in a $400,000 home you should either have $40,000 cash to buy it, or buy a smaller home or rent a while longer. Many folks are too levered or too stretched, and this announcement on Tuesday was a step in the right direction, but did not go far enough. Look what happened in the US, Ireland or the UK, where property prices dropped considerably more than in Canada, primarily due to excessive or too loosely regulated lending practices. Renting still has a stigma in Canada .. a stigma that does not exist in Europe or Quebec where renting is the economic choice of many because it makes far more sense than buying an over-levered, too expensive home.

 

[Pump]

QUOTE (ThomasBeyer @ Feb 18 2010, 07:07 PM)
minimal impact as most home buyers are not investors !



These new regulations will provide a less levered consumer, a slightly cooler house price growth and a more cautious borrower.



More specifically, CMHC announced the following changes on Tuesday, Feb. 16, 2010 :

` Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.

` Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. This will help ensure home ownership is a more effective way to save.

` Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.



This will mean more people will chose to rent a while longer as they may not qualify for new mortgages.



I think Flaherty could have gone the extra step and requiring a minimum 10% down payment as many people are too stretched with 95% mortgage, plus CMHC premium, i.e. essentially homes with 0 equity in them."



If you wish to live in a $400,000 home you should either have $40,000 cash to buy it, or buy a smaller home or rent a while longer. Many folks are too levered or too stretched, and this announcement on Tuesday was a step in the right direction, but did not go far enough. Look what happened in the US, Ireland or the UK, where property prices dropped considerably more than in Canada, primarily due to excessive or too loosely regulated lending practices. Renting still has a stigma in Canada .. a stigma that does not exist in Europe or Quebec where renting is the economic choice of many because it makes far more sense than buying an over-levered, too expensive home.






so if i am in the market for a 4plex - 10 plex and have 20% to put down... should i wait till after the changes to buy with the hopes that these new rules will lower the overall pool of investors in these income properties and the prices will go down as well?

 

[luckyluciano]

Of course 5% down for principle residences still apply.


QUOTE (VicChung @ Feb 18 2010, 05:31 PM) I remember REIN mentioning that the investment community forms only 4% of the buyers which means 96% are homeowners. Do the new rules affect homeowners? If the homeowners are not impacted, then prices should be resilient. The question is can homeowners still buy a property at a 5% downpayment?

 

[Pump]

QUOTE (luckyluciano @ Feb 18 2010, 10:01 PM)
Of course 5% down for principle residences still apply.




they won't make any major changes like upping the min to 10% for principal res until they have a majority, they don't want to piss everyone off

 

[Thomas Beyer]

QUOTE (Pump @ Feb 18 2010, 08:11 PM)
so if i am in the market for a 4plex - 10 plex and have 20% to put down... should i wait till after the changes to buy with the hopes that these new rules will lower the overall pool of investors in these income properties and the prices will go down as well?


no impact WHATSOEVER ..



20% is normal anyway .. 15% is usually not doable these days with commercial revenue properties anymore as CMHC's values tend to be lower than market prices usually !

 

[mortgageman]

From my perspective it`s not necessarily the size of mortgages that the consumers have that is the main debt problem but rather consumer debt like credit cards, lines of credit, crazy car payments, etc.
You`d be amazed by some of the things I see.


QUOTE (ThomasBeyer @ Feb 18 2010, 07:07 PM) minimal impact as most home buyers are not investors !

These new regulations will provide a less levered consumer, a slightly cooler house price growth and a more cautious borrower.

More specifically, CMHC announced the following changes on Tuesday, Feb. 16, 2010 :
• Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.
• Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. This will help ensure home ownership is a more effective way to save.
• Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.

This will mean more people will chose to rent a while longer as they may not qualify for new mortgages.

I think Flaherty could have gone the extra step and requiring a minimum 10% down payment as many people are too stretched with 95% mortgage, plus CMHC premium, i.e. essentially homes with 0 equity in them."

If you wish to live in a $400,000 home you should either have $40,000 cash to buy it, or buy a smaller home or rent a while longer. Many folks are too levered or too stretched, and this announcement on Tuesday was a step in the right direction, but did not go far enough. Look what happened in the US, Ireland or the UK, where property prices dropped considerably more than in Canada, primarily due to excessive or too loosely regulated lending practices. Renting still has a stigma in Canada .. a stigma that does not exist in Europe or Quebec where renting is the economic choice of many because it makes far more sense than buying an over-levered, too expensive home.

 

[Gen1GT]

These changes aren`t going to stop the intelligent investor, it`s just going to create a small change in the way the game is played. 5 years from now, nobody will even talk about it anymore.

Thomas, you didn`t catch it when I made fun of you the first time, but I think the word you`re looking for is "leveraged" not "levered."

 

[JoeRagona]

I agree the game has changed slightly but in fact I am very happy with the new rules. I have been playing by them from day one anyway so it doesn`t affect me at all. It will have a slight impact on my rent to own customers towards the end of the terms which only means I have to monitor a bit closer.

In fact, if anyone is provided rent to own, it would be a great service to you and your customer to factor in an extra 2% or so of qualification at buy out time.

Maybe this is an opportunity for investors with less than 20% down to group together and join in a JV.

 

[Nir]

QUOTE (ThomasBeyer @ Feb 18 2010, 10:40 PM) no impact WHATSOEVER ..

20% is normal anyway .. 15% is usually not doable these days with commercial revenue properties anymore as CMHC`s values tend to be lower than market prices usually !

Will banks still allow only 10% down with VTB as they used to for 10-plex? if the answer is Yes, then Thomas is correct - no impact.

Thanks & Regards,
Neil

 

[Nir]

QUOTE (investmart @ Feb 19 2010, 08:44 AM)
Will banks still allow only 10% down with VTB as they used to for 10-plex? if the answer is Yes, then Thomas is correct - no impact.



Thanks & Regards,

Neil


I thought this is perhaps the most important question for investors following Flaherty's new rules. I guess

either no one knows the answer yet or the question is so basic everyone knows the answer

 

[fumbrunner]

It is not the 20% down that I worry about.  It`s the new (unconfirmed) way that CMHC and potentially lenders calculate TDS. That is the bigger story, IMO.

 

[RussellWestcott]

You may want to check out Don's response to this...

click here

 

[Thomas Beyer]

QUOTE (Gen1GT @ Feb 19 2010, 06:02 AM) ... but I think the word you`re looking for is "leveraged" not "levered."

"levered" and "leveraged" is the same to me as it relates to "levering" your cash for a property investment !!

 

[kanabel]

QUOTE (RussellWestcott @ Feb 22 2010, 11:27 AM)
You may want to check out Don's response to this...

click here




So, unfortunately somebody here was right saying 50% add back through CMHC. Does it apply with bank's conventional when putting 20%, or will they still go 70%-80%?