Millennials are the real losers from new mortgage rules

Millennials will lose up to 20 per cent of their purchasing power from new mortgage rules, which will exacerbate affordability issues, says an organization that represents about 20,000 realtors in British Columbia.

Cameron Muir, chief economist with the British Columbia Real Estate Association, said a family with household income of $80,000 and a five per cent down payment will see their purchasing power drop from $505,000 to $405,000.

“Housing demand will slow as millennials, other first-time and early move-up buyers are squeezed out of the market,” wrote Muir in a note released Thursday.

Starting Oct. 17, all buyers with high-ratio mortgages — less than a 20 per cent down payment — must qualify based on the five-year benchmark posted rate, even if they have negotiated a lower five-year fixed -ate term. The posted rate is currently 4.6 per cent.

“This reduction in demand may cause imbalances and declining prices across some product types in some communities. In addition, new home construction activity will lag along with related employment and economic growth,” Muir noted.

The metro Vancouver market has already started slowing down, with sales in September off by about 33 per cent from a year ago. So far, prices have held and are up more than 28 per cent from a year ago.

Muir says across the spectrum consumers will be hit. An individual with $60,000 in annual income and a five per cent down payment would see their purchasing power drop from $380,000 to $305,000. A household with $120,000 in income per year and a 10 per cent down payment would see its purchasing power drop from $803,000 to $651,000.

The economist says the rules could ultimately create another upward cycle for prices in the future. “Pent-up demand will intensify to another cycle of rapidly rising prices in the future as financially retrenched millennials buy up undersupplied housing stock,” he said.