posted by Dave on Dec 3
From Friday’s Globe and Mail
November 28, 2008 at 12:00 AM EST
You could easily pardon anyone looking for a new condominium today for having a case of the jitters. Every day we are bombarded by U.S. reports of a housing market meltdown. CNN headlines a survey that shows one of every 452 homes in the United States is in foreclosure.
The media is chock-a-block with stories about a credit crunch, banks reluctant to lend to other banks, let alone new-home buyers.
Now take a deep breath, sit down and listen up. To paraphrase Dorothy’s line in The Wizard of Oz: This isn’t Kansas any more.
The simple fact is that any comparison between the Greater Toronto Area condo market and what is happening in the United States is about as valuable as discussing whether Batman or Spiderman would come out on top in a fight. It has no relationship to reality.
Yes, sales are down, but then again, last year was a blip, an anomaly, a Yukon gold rush. The market, experts say, is returning to the levels of more normal times.
That is probably good news. It may mean the rise in prices will slow or, even better, stall. It also means buyers will have an enormous range of choice. There are more than 330 different projects on sale in the GTA right now — the most ever.
And, as a shiny red cherry on top, mortgage money is still available for most buyers and at reassuringly low rates.
Granted, lenders are unlikely to offer the discounts on rates across the board that they did last year in the frenzy to do business. First-time buyers with anything less than 5 per cent cash to put down may face a tough time. New Canadians with no credit history in this country can expect to face challenges, and the 40-year amortization period is as dead as Sarah Palin’s hopes of being a heart beat away from power.
Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals, which represents brokers, lenders and mortgage insurers, says it is, in fact, business as usual.
“There is a plentiful supply at reasonable rates for any borrower who can qualify,” he points out. “Condos have taken over from single-family housing as the major force in the residential market and the industry has recognized that.
“There is no issue with supply, and those lenders that focused on subprime mortgages have left the market.”
Five-year, fixed-rate mortgages are available starting at 5.55 per cent and variable-rate mortgages are in plentiful supply at about one percentage point above prime.
“You can occasionally negotiate a discount on fixed-rate mortgages if you have great credit, but discounts on variable-rate mortgages have disappeared,” Mr. Murphy says.
At the Royal Bank of Canada, a spokesperson says it is business as usual in the mortgage department.
“RBC has not seen a decline in mortgage applications in the last four months,” the spokesperson says in an e-mail. “We continue to guarantee rates on new purchases for 90 days, and mortgage rates over the last four months have remained relatively steady.”
At HSBC Bank Canada, Loree Gray, vice-president branch banking for Toronto, says lending to condo buyers continues as strong as ever — to those who meet credit requirements.
“We look for strong employment, enough income to service the debt (between 32 and 45 per cent of income), an acceptable down payment and a strong credit history,” she explains. Buyers who meet all of those tests and can plunk down 20 per cent of the purchase price as their down payment will be welcomed with open arms by lenders, the bankers say.
Less than that 20 per cent down, however, means you likely will have to seek an insured mortgage from Canada Mortgage and Housing Corp. In that case, the federal government, acting through third-party insurers, guarantees the mortgage will be repaid if the borrower defaults.
These insurers charge between 2 and 3 per cent on top of the mortgage interest rate, and, this fall, CMHC set out new rules for mortgage insurance.
As Mr. Murphy explains, there are three basic guidelines borrowers should be aware of.
First, condo buyers must be able to make a down payment of at least 5 per cent of the purchase price, but at the same time, they can borrow that if they can find a lender willing to take the risk.
Second, CMHC says no more 40-year amortization periods. Now, 35 years is as long as it is willing to go.
Finally, borrowers must have a credit score higher than 600. (This score is a statistical analysis of a person’s credit file.)
HSBC’s Ms. Gray offers a tip to new Canadians. If, in their country of origin, they were customers of a bank with offices in Canada, such as her own, that credit score may not prove to be a hurdle.
“If we know you and if you have been a good customer in the past, even if you have no credit history in Canada, our comfort level rises,” she says.
In fact, establishing a track record with a bank in anticipation of some day needing a mortgage is a great idea for anyone, she adds.
“Not only does it give us the level of comfort we need to make that loan, … it also gives insight into which product might best suit your needs.”