New Mortgage Rules=Lower Purchasing Power
Here’s a great article written by a colleague of mine, Dustan Woodhouse, about how the new mortgage rules have severely limited purchasing power.
The average person if stopped on the street and asked; Are today’s low interest rates driving up house prices? Would likely say ‘yes’.
They would be wrong.
And we can let their lack of understanding pass, after all we can agree that math mostly sucks.
However to ask a Realtor, banker, or your Mortgage Broker this question and get the same answer is another story, for them to say ‘yes’ to this question is a large red flag.
Following are some basic numbers that might surprise you, unless you are a Mortgage Broker.
2007
A buyer with 10% Down and a $100,000 annual gross income.
At the time rates were ~4.99% and amortizations were capped at 40 years
Maximum mortgage amount?
~$630,000
Moving along…
2016
A buyer with 10% Down and a $100,000 annual gross income.
At the time rates were ~2.49% and amortizations were capped at 25 years
Maximum mortgage amount?
~$630,000
But then something happened, in response to rising prices and an apparent lack of understanding as to basic math, our Federal Government changed the rules.
And our average person on the street that answered that first question, they were totally cool with things being tightened down, until they went to apply for a mortgage themselves…and found this new reality:
2017
A buyer with 10% Down and a $100,000 annual gross income.
With rates still ~2.49% and amortizations still capped at 25 years.
Maximum mortgage amount?
~$508,500
The exact same household with $100,000 annual income, impeccable credit, a 10% down payment was told, in this very competitive market with a 0.27% arrears rate, a group of households that made it through the 2008/9 meltdown just fine, that now, in 2017, they needed to have their purchasing power cut back by ~$121,500.