December is usually a slow month for mortgage applications. Not so in 2017 — LowestRates.ca actually saw an increase in mortgage inquiries from November to December 2017, the first time that's happened since the company was founded five years ago.
Let’s start by looking at what an abnormal month it was for mortgage applications.
Traditionally, the autumn homebuying season is a busy one for banks and mortgage brokers. Activity in September and October is particularly strong, while weakening into November and even further in December. No one wants to go househunting in the snow, after all.
In 2016, the number of mortgage inquiries (mortgage applications made through our site to a bank or broker) fell 19% from October to November. Inquiries fell even further from November to December — by 29.3%.
Last year, however, saw no such decrease. Mortgage applications barely fell from October to November 2017 — they were down just 2.2%. However, from November to December, inquiries actually INCREASED by 11.4%.
|Month||MoM change in mortgage applications||Lowest 5-year mortgage rate||Most popular type of mortgage|
It’s clear the increase in late 2017 was due to a flood of buyers hoping to qualify before new mortgage rules went into effect on Jan. 1.
The new rules, announced by the Superintendent of Financial Institutions Canada (OSFI), were announced last October. They require anyone buying a home in Canada, regardless of the size of the downpayment, to undergo a stress test to prove a homebuyer can continue to make mortgage payments even after rates rise.
The stress test involves taking a person's qualifying mortgage rate, and then adding on two percentage points, or increasing it to the five-year average posted rate — whichever one is higher. As an example, if you qualify for a 2.8% mortgage, the average posted rate is currently 4.99%. We explore the math behind how this change affects homebuyers in an in-depth post here.
Another trend we've seen during this homebuying is a shift to fixed-rate mortgages. It's clear that Canadians are concerned about the impact of higher interest rates on their mortgage payments. The Bank of Canada will make its first interest rate announcement of 2018 next week, and many economists expect that rates will once again move higher, following to interest rate increases last year.
There are a lot of questions about what the December rush will mean for Canadian homebuyers in 2018, especially in the expensive markets of Vancouver and Toronto, where the rush was most pronounced.
One expert we spoke to believes that the traditional spring homebuying season, which often begins in late February, will be delayed this year, possible to April or beyond.
Regardless, it's clear that these rules very seriously impact Canadians — it hurts their buying power. But if the rules work, they will also guarantee that the prices Canadians are paying for property aren't grossly exaggerated by low interest rates. Either way, with the new rules now in effect, we'll soon find out.
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