Calgary Buyers May Be Hit By New Mortgage Regulations

Alberta may feel the unintended consequences that will result from the new mortgage regulations by the federal government targeted for the Toronto and Vancouver housing markets, according to Canadian Home Builder's Association-Alberta (CHBA-AB), Calgary Sun reports.

The new mortgage regulations will affect home sales for those priced between $500,000 and $1 million. A new minimum down payment for new insured (high-ratio) mortgages will be applied for the portion of the house price above $500,000 from the previous 5% to the new rate of 10%. Meanwhile, properties up to $500,000 will remain at the 5% down payment rate.

For Finance Minister Bill Morneau, the recent move "will impact 1% or less of the market", he expressed when he made the announcement.

Not true in Alberta and especially not in Calgary, says Jim Rivait, CEO of CHBA-AB.

"Almost 70% of new single-family homes sold so far this year were priced above $500,000 and in Calgary that proportion is above 85%," says Rivait. Based on the data by Canada Mortgage and Housing Corp., Calgary's new single-family home price is at an average of $759,140. That number would then bring the full down payment today at $37,957 and the new regulations will bring it to $50,914.

Meanwhile, the Calgary MLS market is dancing a different tune in terms of sales volume over $500,000.

Data from the Calgary Real Estate Board reflects that to the end of November, the city's overall sales was comprised of 29% priced between $500,000 to $1 million. When categorized, belonging in that range is 39% of single-family sales, 19% attached sales and 5% apartment sales.

Unlike Morneau, Benjamin Tal from CIBC Economics sees an impact that will be greater than 1% of the housing markets.

"The attempt is to slow down the only two markets that are really moving, Toronto and Vancouver. Those markets happen also to be the most expensive ones. So linking downpayment to price should do the trick," says Tal in his In Focus memo. "For the country as a whole, the share of new sales of properties over the past year at this price range is around 17%. In Toronto, that ratio is over 40% and in Vancouver close to 33%. Now to the other part of the equation - the high-ratio segment of the market. For the past year, the share of high-ratio mortgages in total outstanding is estimated at 23% of originations. Accordingly, for the market as a whole the new measures will impact an estimated 3.9% of mortgage originations."

Tal is looking at 5% of the new sales in Toronto  and 2.5% in Vancouver that will be impacted by the new measures, with Calgary likely to fare the worst.

"The largest impact, close to 10%, will be on Calgary, due to its relatively large share of high-ratio mortgages," he says. "Not exactly a city that needs additional cooling."

Which is the CHBA-AB's point.

"While most buyers of homes costing $500,000 or more already put 10% or more down, we're concerned when blanket national policies are imposed because of regional housing market issues," says Rivait.