The largest provider of mortgage insurance in Canada speaks -- And it doesn't sound promising.
There’s a good chance that you already have a mortgage on a property or plan on getting one in the near future. In addition to having a place to settle into, it's also a great alternative investment in the private markets that have seen returns of about 6% since 1968.
Just like every other industry, sector, or geography in the world right now; the housing market has taken their share of a hit. The Canada Mortgage and Housing Corporation (CMHC) has recently released their housing market outlook prediction that prices would fall between 9-18% over the next 12 months. As such, effective July 1st, 2020 the underwriting policies for insured mortgages through CMHC just got a lot more strict.
Here’s what’s changed
Who does this affect?
Mortgage default insurance is required for people who have put a down payment of less than 20% -- In Canada, you must put at least 5% down.
How does this help home-buyers?
Well, the issue that the CMHC is minimizing is the fact that so many Canadians are putting down payments of less than 20%. Also, a survey from Mortgage Professionals Canada showed that 20% of down-payments come from borrowed sources for first-time home buyers; in other words, people are taking on WAY too much debt. This is a way to weed out the bad apples.
Ok so what? Well remember how CMCH predicted that housing prices will drop between 9-18%? Imagine how much money people can lose in their investments if/when this happens!
Quick Example:
You buy a property for $800,000 (just under the average price for a Toronto residence)
I put a 5% down payment of $40,000.
A year later, the property value depreciates by 10% losing $80,000 of its value.
Effectively I’ve just lost $120,000 on this investment.
The Future:
Throughout this pandemic, the magic word to solve the world's problems have been BORROWING.