The government of Canada has been dealing with an overheating housing market since the beginning of the pandemic. It had introduced policies that would slow down the market. In its latest effort, the government announced on Thursday that it will tighten mortgage qualification rules.
The government set a new benchmark interest rate to determine whether people qualify for mortgages that are insured by Canada’s housing agency. Homebuyers will have to show that they can afford a minimum rate of 5.25% starting June 1st.
Additionally, the governor of the Bank of Canada said on Thursday morning that Canadians should neither assume interest rates will remain at historic lows nor expect recent sharp gains in home prices to continue. He also warned that three Canadian cities including Toronto, Hamilton, and Montreal will experience a sharp increase in prices.
Montreal, for example, has been added to Bank of Canada’s watch list. Condo prices in the city were up 23%, in the beginning four months of this year. While a detached home in metropolitan Montreal was up 31% in the same period. According to The Canadian Real Estate Association Home Benchmark Price in Montreal was C$483,200 versus C$1 million in Toronto, and C$636,000 in Ottawa.
Do you think this new rule will stop people from buying into the overheating housing market?
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References:
1) Bharti, B. (2021, May 20). 'Exuberant' housing markets in Toronto, Hamilton, Montreal pose threats to financial stability, Bank of Canada says. financialpost. https://financialpost.com/news/economy/exuberant-housing-markets-in-toronto-hamilton-montreal-pose-threats-to-financial-stability-bank-of-canada-says.
2) Hertzberg, E., & Hagan, S. (2021, May 20). Trudeau Tightens Up Mortgages After Macklem Sounds Housing Alarm. Bloomberg.com. https://www.bloomberg.com/news/articles/2021-05-20/canada-tightens-mortgage-qualification-in-bid-to-cool-market.
3) Rastello, S. (2021, May 21). Montreal’s Hot Housing Market Still Affordable, Quebec SaysSa. Bloomberg.com. https://www.bloomberg.com/news/articles/2021-05-21/montreal-s-hot-housing-market-still-affordable-quebec-says.
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