Surge in home sales?

The real estate industry is bracing for a surge in home purchases, betting buyers will rush to get ahead of tighter federal government standards for the mortgage industry.

The Finance Department will stop guaranteeing 40-year and zero-down-payment mortgage loans starting Oct. 15.

That has set off speculation that a surge of buyers, particularly those in pricier regions who have little money saved, could try to push into the market before the new rules take effect.

“Anybody who doesn't have 5-per-cent down likely will be trying to get into the market,” said Gary Siegle, regional leader at mortgage broker Invis Inc.'s Calgary office. In markets where prices have soared, such as Calgary and Toronto, first-time buyers need the longer amortization to bring monthly payments down to a point they can afford, he added.

Home buying activity is expected to rise sharply leading up to the Oct. 15 deadline, then taper off again when mortgages become more difficult to obtain, said Sébastien Lavoie, a former economist at the Bank of Canada who now works at Laurentian Bank in Montreal.

“I am very sure there will be a rush of buyers and brokers and lenders rushing to get in before the deadline,” said John Panagakos, owner of Toronto brokerage The Mortgage Centre.

The Federal government said it was making the changes to its mortgage guarantees to strengthen the real estate market, and to help guard against a U.S.-style housing bubble.

Canada's housing market has already cooled, leading some critics to say the government moved too late. However, the changes are also likely a pre-emptive effort to mitigate the risk of the federal government's exposure to the mortgage market, said Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals.

Mortgage insurance was introduced in 1954 through the Canada Mortgage and Housing Corp. (CMHC) to help Canadians who hadn't saved up enough money to qualify for traditional mortgage loans from the banks.

Currently, buyers with less than a 20-per-cent down payment pay a premium for the insurance, which protects the lender in case of default. For example, someone with a $300,000, 40-year amortization mortgage and a 5-per-cent down payment will pay $10,050 for insurance.

Three competitors of CMHC have now entered the mortgage insurance market, Genworth Financial Canada, AIG United Guaranty Canada and The PMI Group, Inc. Canada.

The government guarantees 100 per cent of CMHC-insured loans, and 90 per cent of those in the private sector.

“I think the government is sending us a clear signal that there are boundaries it intends to enforce,” said David Liu, vice-president and head of operations at PMI Canada.

PMI is still trying to figure out what the move means for its business, including deciding whether it will continue to provide insurance for 40-year and no-money-down mortgages without the government guarantee, he said.

While such a move has risks, it could give private insurers an edge over the CMHC.

(prepared by Lori McLeod/Globe & Mail)