Toronto mortgage broker Tuli Parubets attended a presentation by a realty company recently where the word “tsunami” was used in a 2025 housing market lookahead.
While the phrase struck her as a bit much, Ms. Parubets already sees signs of a real estate rally fuelled by falling mortgage rates and looser mortgage rules that kick in Dec. 15. “I’m a foot soldier in the market and I see it,” she said in an interview. “There’s a renewed excitement.”
The new mortgage rules improve affordability for people who have down payments under 20 per cent and thus require mortgage default insurance. They’ll have more latitude to amortize mortgages over 30 years, up from the current limit of 25. And, they’ll be able to buy homes that cost up to $1.5-million, an increase from the current price cap of $1-million for insured mortgages.
Ms. Parubets sees the new rules helping clients with substantial incomes who have been unable to save the 20 per cent down payments currently needed to buy in Toronto, where the average price last month for all properties was $1.1-million and urban detached homes averaged $1.7-million.
“They’re high-income people, with high expenses in the sense that they live large, or they came out of school with student loans,” she said. “So, they’re not always in a position to have savings.”
Ms. Parubets dug into the impact of the new mortgage rules by looking at the purchase of a house priced at $1,499,999. Her numbers show that the minimum down payment on that home would be just under $125,000 with the new rules. The underlying calculation here is 5 per cent on the first $500,000 and 10 per cent of the remaining amount. Currently, the minimum down payment on a $1,499,999 home is just under $300,000.
While down payments fall under the new rules, other aspects of home buying will still be a handful for buyers. Ms. Parubets said the cost of default insurance for buying a $1,499,999 home will be $57,750, an amount she described as “staggering.” She calculates the household income required to qualify for the mortgage at roughly $308,000, assuming no other debts.
Longer amortizations help with near-term affordability by lowering monthly payments, but they also bring higher interest costs over the life of the loan. Ms. Parubets said buyers can fight back by making lump-sum mortgage payments to lower their principal, or by increasing their regular payments by 10 or 15 per cent.
“You literally trick the system in your favour,” she said. “You use what the government gave you to become a homeowner, and then increase your payments to bring the amortization back to 25 years.”
Squeamishness about 30-year mortgages is also undercut by the fact that they’re already available to people who have payments of 20 per cent or more and thus don’t need default insurance. Ms. Parubets said most of her clients in this position go with 30-year amortizations.
As noted in a recent column, the new mortgage rules bring a needed update of borrowing guidelines written when houses were much less expensive than they are today. But there’s legitimate concern that easier mortgage lending will juice sales and prices in the housing market.
Ground-level intel from Ms. Parubets suggests housing is already starting to break out of the stagnancy of recent months. She sees bidding wars returning, as well as bully bids. A bully bid is a pre-emptive offer with a limited time window that is made to edge out other buyers.
Falling interest rates coupled with stable prices are behind the change in the Toronto market. The cost of the popular three-year fixed-rate mortgage with a solid discount has fallen to roughly 4.8 per cent from 6.3 per cent 12 months ago, and five-year variable rate mortgages are down to about 5.5 per cent from 6.3 per cent.
With a worsening job market and lingering recession risk, the question ahead for Toronto real estate is how we get to a tsunami from today’s renewed excitement. For now, there’s an admirable sense of perspective about housing among Ms. Parubets’ clients.
“I find my buyers to be more prudent, more conservative,” she said. You know, actually thinking, ‘I want to have a life if I’m going to live in the city.’ ”
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