Or is it simply a slow news day?
Monday marked the first day that buyers will have to make a minimum down payment of up to 10% on the price of houses over $500,000, but as those of us who read beyond the headlines are aware, that’s a sliding scale, that sounds a lot worse than it is.
I’m of the opinion that the new 10% minimum won’t have as much of an effect as other people might suggest, and that the hot January market cannot be attributed to buyers “hurrying up” to get ahead of the new mandatory minimum…
Anything can be “news” by simply reporting it.
Have you ever been watching, listening to, or reading something, and then suddenly thought, “What the hell is this? Why is this relevant?”
The cynical phrase, “Must be a slow news day” is often used to describe those human-interest stories, like a cat stuck in a tree, or something else that really isn’t impactful, but for some reason, is being reported on.
But sometimes, seemingly-important sounding stories are disguised as news, when in fact, there’s no real story there.
Yes, Monday marked the first day under new mortgage policy enacted by the CMHC.
Yes, buyers will now have to make a slightly higher down payment on the purchase of houses between $500,000 – $999,000.
Yes, this is something that will impact people, and thus should be reported.
But the stories I’m reading, the coverage I’m seeing, and the media that will undoubtedly follow in the coming days is an incredible overreaction, and in some cases, the coverage is irresponsible.
There was a lot of coverage on Monday, but a CBC piece caught my eye: “Mortgage Rules Requiring 10% Down On Canadian Homes To Kick In Today”
The excerpt that I wanted to explore is as follows:
Toronto real estate agent Sonya Côté said first-time homebuyers were feeling the pressure to put their five per cent down on homes while they still could.
“Coming up with $3,000 or $5,000 or $7,000 more for a down payment to get in there for the first time is a lot of money for first-time buyers,” she said.
The rules change meant Côté was able to sell a row house that hasn’t been renovated, and with no parking, in a week.
“That drove traffic through this place like a circus,” she said of the new regulations. “We had 103 showings, 13 offers and it went for $149,000 over asking.”
The agent predicted real estate traffic will slow now with first-time buyers facing stricter regulations.
Now first of all, I mean no disrespect to the agent who is being quoted. It’s not her comments that I take issue with, but rather the CBC’s drawing of a conclusion.
This part in particular: “The rules change meant Côté was able to sell a row house that hasn’t been renovated, and with no parking, in a week.”
That’s absolute nonsense.
It’s misleading, and it’s irresponsible.
First of all, “rowhouses that haven’t been renovated, and with no parking,” are not difficult to sell in Toronto. Anything is saleable in this market, and anything will, in fact, sell.
Secondly, “in one week” is not impressive, given that every single freehold property that is listed for sale in the central core, with a “set offer date,” takes offers 6-8 days after the property is listed.
To say “the rule change meant Côté was able to sell a row house that hasn’t been renovated, and with no parking, in a week” is misleading.
It’s not the rule change that meant this house sold in a week.
It’s the Toronto real estate market.
13 offers on a house? $149,000 over asking?
We call that “Tuesday” in Toronto, meaning it’s “any day” and “every day.”
I’m of the opinion that the change to the minimum down payment rules had absolutely, positively, zero impact on the sale of this “un-renovated, rowhouse with no parking” that managed to sell for over-asking, in a market, where every goddam houses sells over asking.
This is the problem I have with media trying to create news stories.
The CBC took two things, and created a cause-and-effect relationship between them.
1) The mortgage rules are changing.
2) This house sold for $149,000 over asking.
Ergo, the mortgage rules changes caused this house to sell for $149,000 over asking.
You can’t simply create a story like that, however. It’s not fair.
How about this:
1) You were reading this blog.
2) You found a quarter on the street.
Ergo, reading this blog results in immediate financial gain.
An otherwise uninformed reader is led to believe that the mortgage rules changes impacted this sale, when in fact it was simply the way the article was written.
When the new mortgage rules were first announced last December, I got calls from three different reporters, asking me if I felt there would be a “rush” to buy homes.
I told them that I didn’t have a single existing client who felt that he or she would be impacted and thus needed to speed up the property search, nor did my phone ring once from a new buyer looking to get into the market over the coming three months.
The funny thing is, I didn’t feel like any of the reporters were asking me a “yes or no” question. I felt as though they already had their minds made up: that this mortgage policy change will affect the market, and they were simply calling around to find a Realtor that would say “yes, it will.”
I wasn’t surprised at all to see all three articles published without any of my quotes, but rather with quotes from agents, mortgage brokers, or buyers who were talking about how this would impact them, or how much more it would cost to buy a home.
And how much more does it cost to buy a home?
“From 5% to 10%” is how the mortgage policy change is being reported, for the most part.
But in fact, the 5% minimum still applies to the value up to $500,000, and it’s only the balance up to $999,999 that goes from 5% to 10%.
So the buyer of a $700,000 house, who would have put down 5% or $35,000 before, now has to put down $45,000. That’s 5% of $500,000, plus 10% of the balance of up to $700,000 – which is 10% of $200,000.
So how many buyers out there are impacted by this?
How many buyers are price sensitive to the point of being able to buy that $700,000 home with their $35,000 down, but not if $45,000 is needed?
I’m not going to suggest that $10,000 is insignificant.
But how many buyers make the minimum 5% down payment to begin with?
I don’t have numbers on this, but I’d speculate that perhaps one in five of my clients does so.
So let’s assume that 20% of people are making the 5% minimum down payment. Now how many of them are priced out when the down payment, in this example, goes from $35,000 to $45,000? I’d guess perhaps one in ten.
So that’s 10% of 20%, or 2% of the buyer pool that’s affected, and let’s remember that this isn’t 2% of the entire buyer pool – it’s only those who are looking to buy between $500,000 – $999,999.
And again, this is my opinion, and I’m providing these numbers. This is far from fact, I’ll be the first to admit it.
Maybe the numbers are higher.
Maybe 2% is way off. Maybe it’s 5%. Maybe it’s 10%.
But either way, we’re still not talking about a large percentage of the buyer pool.
And this is still only 2%, 5%, or 10% of buyers for specifically properties between $500,000 – $999,000.
Buyers under $500,000 remain are unaffected.
Buyers over $1,000,000 remain unaffected.
There were 4,672 sales in Toronto this past January.
2,004 of those sales were between $500,000 – $999,000.
2,142 buyers of properties under $500,000 were unaffected.
526 buyers of properties over $1,000,000 were unaffected.
And let’s not forget that on this sliding scale, the impact is minimized the closer the property is to $500,000.
Of those 2,142 sales between $500,000 – $999,999, the highest proportion – 691 of those sales, were between $500,000 – $599,999.
So even if we assumed ALL of those sales were at $599,999, the buyers are still only going from a $30,000 down payment to a $35,000 down payment.
Call me crazy, but I just don’t see this resulting in a huge impact on the market.
I know that $5,000 is a lot of money.
But I’m not convinced that nearly as many buyers are making 5% down payments as critics might have us believe, and I’m not convinced that they’re ALL exceptionally price-sensitive.
I’m not saying this as a biased real estate agent with an agenda and an axe to grind.
I’m saying this as an active real estate agent who hasn’t had one, single client bring up this subject…