The federal government's decision to raise the minimum down payment for new insured mortgages will have only a modest impact on Vancouver's red-hot real estate market, observers say.
The Department of Finance announced the policy change Friday. Effective Feb. 15, it said, the minimum down payment for new insured mortgages will rise to 10 per cent from 5 per cent on homes priced above $500,000. The 10-per-cent down payment will apply to the portion of the home over the $500,000 mark. The 5-per-cent minimum down payment will remain for properties valued below $500,000. Properties priced at and above $1-million already require a minimum down payment of 20 per cent.
Helmut Pastrick, chief economist at Central 1 Credit Union, said he expects the move to have little impact on Vancouver's real-estate market. On a $600,000 home, Mr. Pastrick said, the minimum down payment will increase to $35,000 from $30,000. On a $900,000 home, the minimum down payment will increase by $20,000, he said.
"Obviously, it makes it a little tougher for low-equity buyers to buy in that $500,000 to $1-million price range," he said in an interview.
Cameron Muir, chief economist at the B.C. Real Estate Association, said about 35 per cent of Metro Vancouver homes sell for between $500,000 and $1-million.
"It sounds like a large number, but those people that are in that price range, looking to only put down a 5-per-cent down payment, it certainly is not that common," he said in an interview. "And so, as a result, I don't think it's going to have a substantial impact on the market. But some potential buyers may put off buying as a result of having to save a little bit more down payment."
Chris Catliff, president and chief executive officer of BlueShore Financial, said he, too, does not expect the move to have a significant impact.
"I don't think it'll cool the hot market, I don't even think it'll make it lukewarm. But I think it'll help keep it from boiling over," he said in an interview.
In a statement, Vancouver Mayor Gregor Robertson said he is encouraged to see Ottawa "start to take steps to control housing prices and reduce risk in our real estate market. It's going to take a number of tools, both in terms of supply and demand, to improve housing affordability in Vancouver." The mayor said he's also hopeful Ottawa will direct Canada Mortgage and Housing Corp. to collect better data on foreign investment, and deliver on campaign commitments to support co-ops and create new tax incentives for rental housing.
But Tsur Somerville, an associate professor at the University of British Columbia's Sauder School of Business, questioned Friday's announcement, calling it the "wrong instrument for the wrong crisis."
"The people that are most likely to be affected by this are first-time buyers, people with relatively low down payments, most likely younger households." he said in an interview. "I don't look at what's going on here and say, 'Gee, this is a market that's really being driven by first-time buyers bidding crazy numbers to get into the housing market.'"
Prof. Somerville added if foreign buyers are driving up home prices in Vancouver and Toronto, "then this is going to do nothing."
The Department of Finance said increasing the minimum down payment "reduces housing market risks by increasing borrower equity.…In the short term, this targeted measure will dampen somewhat the pace of housing activity over the next year, as some prospective home buyers save for the increased minimum down payment."