New Mortgage Rules Introduced By Liberals Driving Up Housing Market: National Bank

The Liberal government’s new, tighter mortgage rules were meant to help keep the housing market from overheating, but National Bank says the new rules are doing the opposite, at least for now.

Economist Marc Pinsonneault says the new rules — which require a higher down payment on mortgages above $500,000 — account for some of the furious housing activity seen in Toronto and Vancouver, and will probably continue to drive activity higher in the coming months.

Vancouver has “the tightest home resale market in 12 years,” National Bank said Monday in its latest report on the Teranet house price index. Home sales are far outstripping new listings in that market.

National Bank noted that Toronto clocked a record number of home sales in February.

The new rules require insured mortgage holders to put down a minimum of 10 per cent for any portion of a house’s price above $500,000. The 5-per-cent minimum down payment still applies for the portion of a house price below that.

Economists predicted last year the rules would temporarily drive the market up, as homebuyers raced to land a mortgage before the deadline.

But Pinsonneault says the effect will continue this year, because the new rules don’t apply to anyone who locked in a mortgage before Feb. 15 of this year, and those people have until July 1 to buy a home.

“So sales in these expensive cities can be stimulated over the coming months as well,” Pinsonneault wrote.

The National Bank-Teranet house price index for February showed that house prices rose 6.5 per cent over the past year, with virtually all of that growth in Toronto and Vancouver.

Home prices have fallen over the past year in five of the 11 major cities tracked by the index. Perhaps not surprisingly, given the oil price crash, Calgary has seen the sharpest decline in house prices.

They’ve slowed down in the past few months in Toronto as well, and are now up just 0.06 per cent since the start of the year, a much slower pace than seen last year.

“The last monthly increase in the composite index, the largest for a month of February since the recession, is totally due to the price jump in Vancouver,” Pinsonneault wrote.

Here are where house prices are rising and falling across Canada.