The Numbers Are In! Record Price Increases Continue!!

Here is what happened. Beginning in 2008, the government made several changes in legislation that have made it more difficult to qualify for a mortgage. The most restrictive changes were the latest ones that came into force in October 2016.

 

The theory is that reduced buyers equals reduced prices. The problem is, that legislators did not anticipate that if people could no longer afford to buy a new house, or even re-qualify for the one they have, they would stay put. The reason they can’t re-qualify is simple.

 

The amortizations are shorter which would mean the monthly payment and the new qualification rule has meant that on 5 year money you would need to have an approximately 40 % increase in gross income to accommodate to match up to the 5 year posted. In other words, there is now a large volume of cyclical resale homes that are no longer available.

 

People are stuck in their homes and can’t sell. In practical terms, the reduction in homes was far greater than the reduction in first-time homebuyers. So now we have a legislated housing shortage.

As we know, when there is a lack of supply, prices will rise.

The stricter the legislation, the fewer people who can qualify to purchase and the less likely they are to sell. It becomes a vicious circle.

 

What’s the solution?

If the legislation has been one of the largest controllable reasons there’s an inventory shortage, then gradual scaling back of the legislation will put inventory back on the market and lead to a market-driven easing of prices.

The only question that remains is: Will the government take action to fix a problem they’re largely responsible for or will they continue to repeatedly make the same mistakes?

Only time will tell.

For more information on price increasing contact Noble Mortgages @ 416-241-2227