New federal rules requiring higher down payments for insured mortgages on homes worth $500,000 to $1 million are unlikely to trigger any dramatic cooling of Lower Mainland real estate markets, according to one analyst.
Central 1 Credit Union chief economist Helmut Pastrick said the practical effect of the change from a five to 10 per cent down payment requirement in that band is minimal because it applies only on the portion over $500,000.
It means a $600,000 home will require a $35,000 down payment instead of $30,000 to gain Canada Mortgage and Housing Corp. insurance, effective Feb. 15. A $900,000 home's required down payment would rise from $45,000 to $65,000.
"In the higher cost markets such as Vancouver and Toronto it would have some impact," Pastrick said. "Right now, I would classify it as modest."
Homes priced over $1 million remain subject to a minimum 20 per cent down payment and the existing five per cent requirement is unchanged at $500,000 and under.
Pastrick said that may give home builders some impetus to try to price Vancouver area condos and suburban townhomes within that threshold.
The change limiting the mortgage exposure of some buyers is one of three adjustments unveiled by federal finance minister Bill Morneau that are aimed at reducing the risk of a taxpayer bailout if home prices implode in Canada's hottest real estate markets.
Banks will also have to hold more capital to cover residential mortgages, which Pastrick said could put some upward pressure on rates, although that change does not kick in until 2017.
Pastrick said most buyers of homes in the affected price range likely don't require insurance because they have enough existing equity.
It's just the latest in a series of tightenings by the federal government since the 2008 financial crisis.
Pastrick noted that at one point CMHC-insured mortgages could be amortized over 40 years, but that got chopped back to 35 and then 25 years.
He predicts that for now, markets will continue to grind higher.
"Over time prices will continue to rise," he said. "This won't really have much of a dampening effect on housing prices in Vancouver."
The Real Estate Board of Greater Vancouver reported a benchmark price of detached houses of $1.22 million in November, while attached units like townhouses were $536,000 and condos were $435,000. Those benchmark prices are much higher in and around Vancouver, and lower in eastern suburbs, such as Maple Ridge.
The prices have climbed 22 per cent over the past year in the case of detached houses, and 11 per cent for condos.
The biggest potential future risk to real estate markets is another global recession, Pastrick said.
Other changes that could affect real estate markets may be on the horizon, in response to concerns that foreign buyers are driving up prices.
The provincial government has suggested it may charge a higher property transfer tax on high end homes.
More reliance on Bank of Mom and Dad
First-time home buyers are the ones who are most likely to be affected by the down payment change.
And they will likely rely even more heavily on the "bank of Mom and Dad," according to the Society of Notaries Public of B.C.
It cited a survey of its members showing about half of first-time buyers in Greater Vancouver get help, usually from parents, with their down payment.
For about 62 per cent of new buyers getting help, Mom and Dad put up less than a quarter of the down payment, but in more than a quarter of cases parents are paying up to half of the money down, and 11 per cent of the time they're paying more than half.
In the Fraser Valley, the notaries estimate even more first-time buyers – 75 per cent – rely on parental help. In 56 per cent of those cases, parents covered less than a quarter of the down payment, while one third covered a quarter to half, and 11 per cent provided more than half.
Money to buy a home usually is given as a gift, but in a minority of cases parents go on title or a formal or informal loan is drawn up.