Home Sales Plummeted Due to Tougher Norms and Higher Interest Rates

Home_Sale

Jul 19 2017

The Monetary Policy released by Bank of Canada Governor Stephen S. Poloz further slowed down the already crawling drive to invest in property.

On July 12, 2017, Bank of Canada raised the target for overnight rate to ¾ % from ½ %. This coupled with the tough mortgage rules of April have considerably hampered buyer’s interest. As reported in June, 2017, there has been a 6.7 per cent drop in the home sales, the lowest in seven years.

This is attributed to the changes made in Ontario housing policy in late April. As a result, many enthusiastic home buyers did not qualify for the mortgage they applied for. On top of that, the recent increase in overnight rate target has hit potential home buyers real hard.

The changes were made in the housing policy to curb down shadow buying and unethical buying practices. Higher taxes (15%) for foreign buyers, and other such measures opened doors for genuine home buyers. Also, with a slowdown in real estate sector, home prices have come down.

When home buyers were struggling to understand the new housing policy and where they stand as a mortgage seeker, Bank of Canada increased the overnight rate target by 25 basis points to 0.75% from 0.50%.

That’ll result in a significant increase in prime rates which will affect the variable mortgage rates reaching the buyers. The ones who opted for fixed term mortgage rates emerged to be immune of these market forces for a fixed tenure.

Ultimately, this has affected the enthusiasm of new home buyers who were awaiting their pre-mortgage approval. It has resulted in many opting out and postponing their home buying dream to a favorable time in future. There are ample opportunities for negotiations as home prices have gone down as well. At least that’s was intended. To make home buying affordable for people.

But has that been achieved? With home buyers needed to undergo a stress test to qualify them for a mortgage, very few are actually able to convert their home buying dream into reality. Only time and the next monetary policy will tell if the desired results are being realized or not.

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