Personally I am not a fan of government intervention in the markets in this way, however, I don’t think these new rules will dramatically affect the market in any significant way. It seems more than anything, the moves today are meant to send a message to Toronto condo buyers in particular that condo flipping is not cool and real estate investing is not the same thing as speculation. Flaherty even mentioned “multiple-condo markets” in his statements to the press. Hmmm…I wonder what cities he is referring to?

My thoughts on the 3 key points in the release:

• Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.

Many lenders already do this by my understanding, so no big change here – if you want a 35 year amortization variable rate mortgage, you can get it, you just have to qualify for the mortgage funds at a 25 year fixed rate mortgage.

• Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. This will help ensure home ownership is a more effective way to save.

This change is so marginal that I don’t know why they did it other than to send a message that borrowing money against your home is just about always a really bad idea financially.

• Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.

This one is aimed at all those looking to buy with 5% down and flip in a year for a profit. Flaherty is looking right at you crazy capitalists and saying don’t even think about it.

For the full statement by the government of Canada after the jump. Questions or thoughts on this? I’d love to hear them – leave a comment or email me.

Government of Canada Takes Action to Strengthen Housing Financing

The Honourable Jim Flaherty, Minister of Finance, today announced a number of measured steps to support the long-term stability of Canada’s housing market and continue to encourage home ownership for Canadians.

“Canada’s housing market is healthy, stable and supported by our country’s solid economic fundamentals,” said Minister Flaherty. “However, a key lesson of the global financial crisis is that early policy action can help prevent negative trends from developing.”

The Government will therefore adjust the rules for government-backed insured mortgages as follows:

• Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.
• Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. This will help ensure home ownership is a more effective way to save.
• Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.

“There’s no clear evidence of a housing bubble, but we’re taking proactive, prudent and cautious steps today to help prevent one. Our Government is acting to help prevent Canadian households from getting overextended, and acting to help prevent some lenders from facilitating it,” said Minister Flaherty. “If some lenders aren’t willing to act themselves, we will act. These measures demonstrate the Government is committed to taking action when necessary to support the long-term stability of a sector that is so vital to our economy and the financial well-being of Canadian families.”

These adjustments to the mortgage insurance guarantee framework are intended to come into force on April 19, 2010.

This has many people inside and outside the Real Estate industry very concerned. The cost of a new condo or home in the GTA could jump overnight by tens of thousands if this new tax was implemented with no concessions. (Resale properties are not subject to the GST or PST).

The province just announced some new proposed changes to be made to how the HST is implemented as it pertains to new housing. Continue reading for the full press release from TREB.

June 19, 2009 — The provincial government has announced some proposed changes to the way it would apply the proposed Harmonized Sales Tax (HST) to the purchase price of newly constructed housing. The provincial government has also announced proposed transitional details for newly constructed properties.

Background
The provincial government has announced that it intends to combine the eight percent Provincial Sales Tax with the five percent federal Goods and Services Tax, creating a 13 percent Harmonized Sales Tax (HST).
• The HST is NOT YET IN EFFECT. The provincial government has indicated that it intends to bring the HST into effect beginning on July 1, 2010.
• HST will not apply on the purchase price of re-sale homes.
• HST would apply to services such as moving cost, legal fees, home inspection fees, and REALTOR® commissions.

Proposed Changes for New Housing Rebate
HST will apply to the purchase price of newly constructed homes. Originally, the provincial government indicated that it would provide a rebate to ensure that, on average, new homes under $400,000 would not be subject to an additional tax burden. Homes priced between $400,000 and $500,000 would be eligible for a portion of the rebate, and homes priced above $500,000 would be subject to the full HST. However, the provincial government is proposing some significant enhancements to these rebates, as follows:
• Enhanced new housing rebate – The province is proposing to enhance the new housing rebate so that new homes across all price ranges would receive a 75 per cent rebate of the provincial portion of the single sales tax on the first $400,000. For new homes under $400,000, this would mean, on average, no additional tax amount compared to the current system.
• New rental housing rebate – Similar to the enhanced new housing rebate, the province is proposing a rebate for new residential rental properties. This proposed rebate would support affordable rental housing across Ontario.

Proposed Transitional Rules for New Housing
The province is also proposing transitional rules for new housing. Generally, as part of the transitional rules, sales of new homes under written agreements of purchase and sale entered into on or before June 18, 2009 would not be subject to the provincial portion of the single sales tax, even if both ownership and possession are transferred on or after July 1, 2010. The tax would also not apply to sales of new homes under written agreements of purchase and sale entered into after June 18, 2009 where ownership or possession is transferred before July 1, 2010.

More Detail
Additional detail on the proposed enhancements to the new housing rebate, rental housing rebate, and new housing transition rules is available from the Provincial Government here.