Here we are finding ourselves in 2013, is it me or did 2012 seem to fly by? January started with the RIM downfall which was plagued by dwindling revenues, executive resignations and job cuts. In February, we saw the New York Giants win Superbowl XLVI and in March, it was Kony 2012. April had Finance Minister Jim Flaherty announcing a $5.2 billion chop with over 19,000 civil servant jobs lost. May launched Facebook into the record books as it became the biggest IPO in Internet history. June had the LA Kings winning the Stanley Cup and the Miami Heat taking the NBA Championship. July caught us all off guard with Finance Minister Jim Flaherty implementing four new mortgage rules and August took us to the moon and beyond with Curiosity rover landing on Mars. September landed Apple in the record books as it launched the iPhone 5. As a Blackberry supporter for years, I even made the switch; did you? October had us on the edge of our seats with Felix Baumgartner's Red Bull jump from space and November confirmed that after a costly, divisive and sometimes nasty yearlong campaign, Obama was re-elected for a second term in office. December brought the world to a stand still with the impending Apocalypse and the new hashtag #kimye started trending on twitter with Kim Kardashian and Kanye West announcing they're expecting a baby.
As for mortgages, interest rates ended in 2012 similar to how they began and for the most part this is due the Bank of Canada keeping it's key interest rate unchanged. The overnight rate is currently 1.00% and has remained unchanged for a total of 848 days. Projections by the leading economists predict the overnight rate to remain at 1.00% for an undetermined length of time.
During a news conference held on June 21, Finance Minister Jim Flaherty caught everyone off guard by implementing four new rule changes that would change the lending world as we know it. As Flaherty put it, "We want people to make sure that when they purchase the most important purchase they'll probably ever make in their life, that they do so in a prudent way. And some calming of the market is desirable."
Calming is right. Since July 9th when these new rules were implemented, we saw sharp declines in Real Estate especially in markets such as Vancouver and Toronto. Initially the impact on First Time Home Buyers was projected in the 5 percent range but we soon realized that the number is closer to 20 or even 25 percent in Vancouver and Toronto. Many Canadians are just holding off from purchasing and many First Time Home Buyers are simply saving up a little more for their down payment. Have these rule changes impacted you?
As a recap, here were the latest changes that Jim Flaherty implemented back in July:
1. Reduce the maximum amortization to 25 years as opposed to 30 years for high ratio borrowers. These are borrowers with less than 20 percent for their down payment.
2. Refinances were reduced to 80 percent from 85 percent. For example, if your home is worth $500,000.00 and your mortgage is currently $350,000.00, you will be able to have access up to $400,000.00 while leaving $100,000.00 of equity in your home.
3. In an effort to ensure taxpayer-backed mortgages are not going to wealthy Canadians, the availability of insured homes will be limited to a purchase price of $1 million.
4. The maximum gross debt service ratio (GDS) will be fixed at 39 percent and the maximum total debt service ratio (TDS) at 44 percent.
*** If you have a purchase agreement on a new development that was made prior to July 9th, 2012, I encourage you to give me a call today to discuss your options with these new rules. I will evaluate your file to ensure you will be able to close on your new home, it will only take ten minutes of your time. Free consultation ***
I wish I had more insight on what interest rates will do this year or where real estate prices will be even tomorrow. The top economists of the world can battle those questions and I will definitely pass on their predictions. From what I gather, banks have hinted that interest rates will stay low for the coming months and the variable rate may actually become slightly more competitive. We may not see Prime minus 0.90 percent being available anytime soon such as the beginning of 2012, but the spread between the fixed rates and the variable rate will be slightly greater than today. I do not think that real estate prices will erode by much this year, in fact I think we have seen the erosion occur already in markets like Vancouver and Toronto; especially with condominiums. I foresee a steady market for the year ahead with anxious buyers looking to purchase properties. Depending on the property, there may be some fantastic deals available in the coming months.
Just remember, interest rates are one thing but looking at the entire mortgage product is where I can provide you with the lowest total cost of borrowing. I am able to outline every option for you and cater a mortgage product that best suits your lifestyle. I look forward to hearing from you and all the best in 2013!
As always, I encourage you to contact me if you have any questions with your current mortgage or are looking for one. Please find me on facebook at facebook.com/jnmortgages and on twitter @jasonmortgages.
Jason Nesseth with TMG The Mortgage Group Canada Inc. If you have any questions or comments about this blog, please feel free to call Jason at 604.375.7375, email jason.n@mortgagegroup.com or visit his website at jasonnesseth.com