Why CMHC’s new rules is a good thing for investors
Why CMHC’s new rules for mortgage qualification is a good thing for investors. The Canadian Mortgage and Housing Corporation (CMHC) has announced changes to its coverage criteria for insured mortgages. These changes could make it more difficult to qualify for a mortgage in Canada.
CMHC is the country’s largest issuer of mortgage default insurance, which protects lenders if a borrower cannot make their payments. Mortgage default insurance (often called CMHC insurance) is required on any mortgages with a down payment of less than 20%.
The changes — which are mainly to CMHC lending rules — are predicted to make it harder for aspiring home buyers with down payments of less than 20%.
These changes will go into effect starting July 1, 2020. The impacts of each of these points are discussed further below.
Less Home Buyers Means More Renters
Simply put, there will much fewer first-time home buyers hunting for a new home. With purchasing power lowered down to 11%, those who planned to jump into homeownership may have to wait longer.
We want the renters to… stay renters! We provide housing to them, making them our customers. Every time there are changes affecting the buying power of wannabe homeowners, it always an opportunity.
Rental Units Shortage Will Continue To Drive Rents Up
With fewer people buying homes and continuous pressure being put on the rental housing market, the rents will be pressured to go up. This is a simple rule of supply and demand. I had a tenant recently who was looking to move out of my three-bedroom unit into a new rental home with more bedrooms and bigger space for their family. She struggled to find such a home for a long period of time and was ready to pay a premium because there was no inventory. There were no units available with those that appeared on the market being snatched up quickly at the above-asking price.
The housing crisis from pre-COVID time did not go anywhere, and it will only be amplified now that things are reopening.
For an existing rental inventory, we should be happy if tenants decide to move out in order to be able to charge higher rents even when it may seem counter-intuitive during the ongoing pandemic. With increased rental demand and low inventory, renters are forced to compete for those few units available.
Starter Homes Get a Price Boost
At the same time, there will be a bigger fight for the lowest-priced homes which are typically starter homes under $500,000 as well as condos. These properties will get a boost in valuation. If you have an underperforming single-family home it is a great time right now to make some updates to it and sell at a premium. The capital can then be reinvested into a better performing multi-family property with a higher projected ROI.
I trust you enjoyed this article about “Why CMHC’s new rules is a good thing for investors” for more information please contact VLAD MAEVSKIY CEO and Founder of Forward Investments Group Inc.