GTA Real Estate News: April 2021

Another month, another lockdown….but there was a lot of real estate news this month! Here’s a recap of the important things that happened:

Good/Bad News: March 2021 Sales Numbers Were Bonkers

At the beginning of April, The Toronto Regional Real Estate Board revealed the sales numbers for March. While you can see more detail here, the:

• Average price of a detached house in Toronto was up 19.2% vs 2020, to $1,750,518
• Average semi-detached house sold in 7 days
• The condo market continued to rebound, with prices now back to last year’s levels
• New listings and sales were up a lot vs March 2020 (but that was expected given the March 2020 lockdown)

The stats were great news for Sellers, but not-so-much for Buyers or upgraders.

April 2021 stats will be released this week and based on our team having our busiest month ever, I expect we’ll see more of the same, with volume and prices continuing to increase.

Bad News: A New Mortgage Stress Test Proposed

In 2016, the federal government introduced a mortgage stress-test designed to protect Canadians from rising interest rates, by making home buyers qualify for a mortgage using an interest rate that was much higher than actual rates. OFSI (the independent agency that regulates banks) is now proposing that the interest rate used to qualify people under the stress test should be RAISED to 5.25%. So what does that mean? Our go-to mortgage broker Jake gave us this example for an imaginary buyer, Judy:

• Judy makes $100,000 a year at her consulting job. She has a 10% downpayment so needs CMHC insurance.
• Judy wants to buy a condo with $2,000/year taxes, $400/month condo fees.
• Under the existing stress-test rules, Judy qualifies for a mortgage of $484,000, meaning she can buy a property for $532,400 including her downpayment.
• Under the proposed rules, her maximum borrowing power will be reduced to $465,000, meaning she can now buy a home with a maximum price of $511,500.
• If Judy has a 20% downpayment, today she can qualify for $552,000 – as of June 1st (assuming this proposal is accepted), she’d qualify for $525,000.

So this isn’t great news for buyers…it’s a sign that banks are worried about mortgage rates going up and people not being able to afford their homes when they have to renew their mortgages. If the new stress test increase happens, buyers will have about 4% less purchasing power (which is terrible for first-timers who are already struggling to buy in the GTA with their current budgets.)

Pro tip: If this increased stress test goes through, existing mortgage pre-approvals won’t be valid, so make sure you talk to your mortgage broker, or better yet, buy a home before June 1st, 2021.

Good News: CMHC First Time Buyer Program Expanded

In 2019, CMHC launched a shared equity program to help first-time buyers. The idea was good: the CMHC contributes part of the downpayment (up to 5% for resale and up to 10% for new construction) and shares in the appreciation or loss when the home eventually sells.

The problem: the program’s qualifying income and maximum purchase price rules meant the program didn’t really work in the Greater Toronto Area, where property prices are too high to qualify.

Last week, the CMHC announced new qualifying criteria for the GTA that will finally allow it to have an impact here. While the equity match of 5% remains the same, first-time buyers can now qualify with incomes up to $150K (vs 120K) and on total mortgages of $675,000 – or a maximum property price of $722,000.

Here’s how it works:

• You buy a $700,000 resale home after May 3, 2021
• Your downpayment of $35,000 (5%) is matched by CMHC, effectively giving you a downpayment of $70,000, or 10%.
• You benefit from lower mortgage costs (throughout the life of your mortgage) because your downpayment is 2x what you originally had saved.
• In 5 years, you sell the home for $805,000 and give CMHC 5% of the sale price ($40,250)

This is good news for first-timers in the GTA who’ll finally be able to take advantage of the program.

You can read all about the program here.

Good News: No Change to the Overnight Interest Rate

Despite improving it’s economic outlook, the Bank of Canada kept the overnight interest rate the same (0.25%), which means ultra-low mortgage interest rates continue to be available.

As the GTA struggles with a painful third-wave of the pandemic, it’ll be interesting to see how Buyers and Sellers react in May.