Back in February, in an effort to curb the ever rising cost of Real Estate, the Federal Government raised the requirements for the down payment with respect to the mortgage on the home you're buying.
As it is now, a home buyer must have the cash to place 10% of the purchase price for homes over $500,000 in addition to the 5% under $500,000. For example...if the home you're buying is $680,000 (the median price for a single family home in Victoria) you must have a minimum of $43,000 in cash to place down on your mortgage.
Is it helpful to raise the amount of cash required to purchase a home? If the purpose is to protect the home buyer...perhaps it is.
"The rise in home prices has forced Canadians to go deeper and deeper into debt in order to access the accelerating market. Household debt hit yet another record high in the final quarter of 2015, with the ratio of debt to disposable income averaging 165.4 per cent; meaning the average Canadian held $1.65 in debt for every dollar they made in disposable income last year." BNN
Interest rates are at historic lows and there are no indications at this time of any change coming in the near future. This is one factor that is driving the market...cheap money. BUT, what happens when that interest rate bumps up, even a little, all of the sudden home owners that are already stretched can no longer afford their homes and may default on their mortgages. This exact scenario was a driving factor that caused the meltdown in the US housing market in 2007 and we all know what the trickle down effects of that were.
The chief executive of Bank of Nova Scotia told BNN he is “a little concerned” about price activity in Vancouver and “maybe pockets” in Toronto, where the average price of a home has surged 41 per cent and 45 per cent respectively over the past five years, according to the Canadian Real Estate Association. Higher down payment requirements appear to have made little difference since they took effect in February, but Porter believes that remains Ottawa’s best option. Read the article and watch the interview with Brian Porter here.
Debt load is a fact of life in 2016. Most of us have it and do a pretty good job of managing it. However, we need to keep looking to the future to ensure that the choices we make today guarantee a roof over our heads tomorrow.