New mortgage rules may affect 2013 sales

WinnipegREALTORS® held its seventh annual forecast breakfast on January 16 in anticipation of the season most critical in meeting projected sales, which is the spring. Despite real estate sales activity now being more spread out over 12 months than it used to be, Winnipeg’s spring market still leads the way. In particular, May is the only month to have ever eclipsed 1,600 MLS® sales, which it did again in 2012. And for the first time, May set a new all-time monthly dollar volume record of over $400 million. 
The caution built into predicting MLS® sales this year is the new reality of tighter mortgage regulations (e.g., a reduced amortization period from 30 to 25 years). The federal government changes did not come into effect until the second half of 2012, so you might say last spring’s market escaped the tougher qualifying rules. In fact, the new rules probably motivated some buyers to advance their plans to take advantage of a longer amortization period. 
A segment of the market most affected by the new regulations are first-time buyers, who are always grappling with the challenge of coming up with the necessary down payment as well as closing costs. 
Will Dunning, the chief economist of the Canadian Association of Accredited Mortgage Professionals (CAAMP), in a 2012 study said 17 per cent of high-leveraged buyers would not have qualified for a mortgage in 2010 if the tighter regulations had been in place. 
Not surprisingly, the impact of this change is most accentuated in provinces with higher prices. Given that Manitoba’s average residential price of $222,000 in 2010 was far below the national average residential price of $339,000, anticipated market impact will be considerably less. In some cases, the impact may be overcome if the first-time buyer can come up with a higher down payment to lower their monthly payments on a 25-year amortization period. 
And let’s not forget those first-time buyers who have already taken advantage of a 30-year amortization period. They may have been thinking of selling, but will have to now qualify for a 25-year amortization period mortgage. Quite possibly, the new rules could put a crimp on their plans, as they may not have been able to build up enough equity in the home they now own.
Another factor has led WinnipegREALTORS® to put a cautionary note on 2013 sales. When single-family home sales peaked in 2007, 67 per cent of sales were under $200,000 and conversions of sales to listings at 85 per cent have never been higher. In 2012, only 29 per cent of house sales were under $200,000. Consequently, conversion of listings to sales dropped back to 73 per cent. 
Another factor in Manitoba is that when house prices climb over $200,000, they are exposed to the highest land transfer tax rate in the country at two per cent. For a typical home sale, which is now at $250,000, the buyer has to shell out $2,730 to the province to pay the land transfer tax and register their new property title. It is an upfront closing cost that cannot be financed with the mortgage. This significant payment might prevent a first-time buyer from buying the home they want. 
There has been a flight in the last few years to condominiums, which on average are cheaper than houses, but you have to keep in mind that condos still only represent 12 per cent of total MLS® market share. On the other hand, single-family home sales seize the lion’s share at 73 per cent.
The forecast for 2013 is for the MLS® market to build on the very solid market fundamentals, including low interest rates, positive consumer confidence, high labour force participation, a tight rental market and continued population growth. As a result, it is possible to reach the 13,000 MLS® benchmark level first reached in 2007 and during the last two years. However, due to the challenges facing first-time buyers, sales may fall in 2013. The spring market will be the true test of how first-time buyers are able to adjust.
Home prices are expected to increase in the low single digits, as the Winnipeg market is one of the tightest in the country, lacking enough listing supply to meet the demand. Sellers’ market conditions will continue for a while. Due to sellers’ market conditions, 38 per cent of all single-family home sales over the last three years have sold above list price. 
On the other hand, this ongoing development should not cause the public to misconstrue Winnipeg’s market as one where multiple offers are frequent. Fifty per cent of all home sales in 2012 went for under list price. As is emphasized by REALTORS®, not all properties are created equal. A professional REALTOR® can interpret the current market conditions and advise the best course when buying or selling.
To check out this year’s current market, there’s no better place to go than