Fidelity National News July 2013 Newsletter

Market Outlook
When Finance Mister Flaherty implemented the last set of changes to government-backed insured mortgages he made it crystal clear that he considered it ‘desirable’ to make home buying more difficult. So now that it has been almost twelve months since these changes came into effect, what developments have emerged?

The changes not only had an immediate impact on first-time home buyers, but they indirectly impacted the rental market especially in the large cities. Since 80% of first-time buyers require mortgage insurance, many have been completely shut out from the housing market. Tens of thousands of potential purchasers have been forced to turn to rental properties ultimately driving up the demand for rental units. Now these future buyers not only have to contend with saving larger down payments, to offset shorter amortization periods, but they are facing higher rental costs due to the increase in rental demand.

Despite the changes introduced last July,
the real estate market has been more resilient than many expected. Recent data shows that even though sales and mortgage volumes are down, compared to the same period last year, prices continue to rise persistently higher. The mortgage industry has been working against attempts to cool the market by offering rock-bottom interest rates and many lenders have been turning to uninsured mortgages, with longer amortization periods, to get people to buy homes.

There is still much concern that Canada’s housing market is not slowing fast enough and that prices are rising too high in turn causing borrowers to take on too much debt. The Office of the Superintendent of Financial Institutions (OSFI), the Department of Finance and the Bank of Canada are working closely to further stabilize the housing market, moderate debt levels and reduce economic exposure to rising rates. Although no official decisions have been announced OSFI is currently conducting preliminary consultation with financial institutions on rule changes for conventional mortgages, and may limit the amortization to 25 years (down from 35) for uninsured mortgages. Any changes introduced will ultimately price people out of the market. With this being said, perhaps lenders could review various mortgage options with their clients and show them how a small adjustment to their mortgage amount can make the difference between continued renting versus getting them into a home. As rents are steadily increasing, this may be a viable option.
 
Industry News
Mortgage rates have been the hot topic of discussion for the past few years,especially considering the historical lows witnessed in the market. However, it is prudent to remember another aspect to the overall mortgage calculation – mortgage term – which is an important factor in determining how much interest a borrower will ultimately pay to the lender. Finding the best mortgage rate is an easy exercise to conduct – the internet has an unlimited number of resources and comparison sites to draw upon. Selecting the best mortgage term however is not so cut and dry. The conversation regarding mortgage terms once centered around whether to go fixed or variable, but these days the discussion is taking on a new theme: it’s not whether to lock in a rate, but for how long. The choice is ultimately a personal decision - different people have different needs and different risk tolerances, all of which can change over time.Determining which mortgage term options would best suit your clients, would ultimately benefit all parties involved. By educating
your clients of their options, this will solidify you as a trusted advisor and source.