CMHC says Bigger Downpayments are Needed
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CMHC says Bigger Downpayments are Needed

The government of Canada through it's agency CMHC has decided that it wants new home purchasers to be required to have more downpayment when they buy a house.  Starting next spring the amount of money needed to buy a home over $500,000 will be 5% of the first $500k (which is $25k) and 10% of any amount above that, up to $1 million dollars.

 

For some marketplaces this will have little impact as the average home price may be well under that threshold.  For example, here in my city the average Lethbridge real estate sale is closer to $300,000.  So for buyers of homes here, they will not notice a change, they will still be able to purchase that average home with 5% downpayment.  (there is still 1 bank who will creatively allow you to purchase with no downpayment if your credit is excellent and your income solid, but I don't expect that program to be around for much longer either).  This 5% downpayment is really not much compared to the purchase price, but in recent years the number of buyers who have only 5% down and no more has grown considerably.  There are still lots of buyers, they just have much less money than they did previously to spend.

 

Several years ago the majority of home buyers seemed to have 20% downpayment which they used so they could avoid having to pay any sort of mortgage insurance fees.  It would not appear to be the case that most buyers do not have access to that sort of money to use as the downpayment.  This does place the market in a bit of a risky spot, with the majority of recent home purchasers having so little equity in their homes, should the prices drop by 5 or 10 percentage points, these homeowners would all have zero equity or even negative equity in their property.  This would not be good and is what happened during the US real estate crash.

 

Hopefully the good guidance of the Bank of Canada and CMHC have been active enough that we will not have to worry about anything like that happening i our real estate market.  Still, those who want to sell your house for more than $500,000 might be advised to list it for sale sooner rather than later.  Likely, there will be a small rush of buyers for those upper end homes before the new change takes place.

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