Real Estate Watch: Unsold condos stacking up outside Toronto and Vancouver

When the federal government tightened mortgage rules in 2012, overheated condo markets in Toronto and Vancouver were widely seen as the main target. But little more than two years later, it’s many smaller cities that are bearing the brunt of stricter regulations.

Winnipeg, Montreal and Moncton are grappling with a surplus of unsold condo units driven by a surge in new construction and a dwindling supply of first-time buyers in the wake of Ottawa’s decision in June, 2012, to limit mortgage insurance to amortization periods of 25 years or less from 30 years.

While deep-pocketed investors in Toronto and Vancouver stepped in to fill the void, the picture has been different in smaller markets where condo sales are driven largely by first-time buyers.

“It definitely had an effect on first-time buyers,” said Paul Cardinal, manager of market analysis for the Quebec Federation of Real Estate Boards.

“What’s not really intuitive is that you would have thought the most expensive markets would have been impacted more than the less expensive market, but that’s not necessarily the case.”

The downturn has been most painful in Quebec, where the boom in condo construction started in 2011 and 2012 as young buyers, armed with cheap mortgages, flocked to the housing market.

Roughly a third of Quebec buyers had taken out mortgages with 30-year amortizations – and that number rose to 40 per cent in Montreal, Mr. Cardinal said. He calculated that the change was the equivalent of raising interest rates by one percentage point.

Read full story: Real Estate Watch: Unsold condos stacking up outside Toronto and Vancouver