According to a report by TD bank, new mortgage rules will likely decrease the number of real estate transactions in Canada by 5% in the second half of this year. Moreover, prices will likely go down by 3%, effects that will likely spill over to early 2013. The report also indicates that these ‘corrections’ will likely be short lived and higher interest rates are necessary to bring the market back to healthier levels.
Back in July, Ottawa reduced the maximum amortization for government-insured mortgages to 30 years from the previous 25 years. They also removed government-backed mortgage insurance for homes with a purchase price of more than $1 million. We have already seen the effects of the new mortgage rules. Sale of re-sale homes in Toronto fell by almost 12.5% last month compared to the year before, while sale of homes in Vancouver dropped by 30.7% in the same period.
Ottawa has repeatedly expressed concerns about Canadian’s high debt levels, as well as Toronto’s pre-construction scene which is dominated by flippers and speculators. It remains to be seen whether their initiatives will have the expected results.