The federal government has just announced two major policy changes for insured mortgages to support first-time home buyers, calling them the “boldest mortgage reforms in decades.”
First, the price cap on insured mortgages is being increased from $1 million to $1.5 million, a limit that has been in place since 2012. Second, the eligibility for 30-year mortgage amortizations will be expanded to include all first-time homebuyers and purchasers of newly built homes. This move is aimed at helping buyers in more expensive cities like Toronto and Vancouver, where aggregate benchmark prices, according to the Canadian Real Estate Association (CREA), are $1,082,200 for the GTA and $1,195,900 for the GVA. These markets have effectively become “no fly zones” for insured mortgages, leading to a substantial decline in the banks’ insured mortgage portfolios. Both changes will come into effect on December 15, 2024.
Interestingly, these changes come at a time when the condo resale markets in these areas are struggling. In Greater Vancouver, there is a 6 month inventory of condos, which is affecting the new construction market. Developers have a very narrow window to move presales before potentially facing a very quiet winter period. The GTA is facing the same challenge, with new home sales at a 20-year low.
As always, when it comes to policy changes and their potential impact, the devil is in the details. Currently, the minimum down payment requirement for mortgage loan insurance depends on the home’s purchase price. For homes with a purchase price of $500,000 or less, the minimum down payment is 5 per cent. For homes priced above $500,000, it’s 5 per cent for the first $500,000 and 10 per cent for the remainder. It’s unlikely the government will change these down payment rules. If they remain the same, it means the minimum down payment on a $1.5 million home with an insured mortgage would be $125,000, compared to $300,000 for an uninsured mortgage.
It remains uncertain whether these reforms will spur buying activity soon enough. Winter is typically a slow period for real estate, and condo prices could remain weak for another six months before the market stabilizes, influenced by these reforms and lower mortgage rates. The government’s biggest risk is that the condo market could weaken even further if buyers shift their focus to the townhouse market. If this happens, we may see further interventions, such as lifting of the foreign buyer restriction on the condo market or rule changes for small investors, to help stimulate activity in the condo sector.
Housing Affordability Watch
CMI monitors the latest developments and offers insights on solutions to Canada’s housing affordability crisis
Recent events in Calgary and Montreal underscore the risks of neglecting our aging water and sewer systems. The urgent need to replace deteriorating infrastructure affects nearly every urban center in Canada – and it comes with a price tag in the hundreds of billions.
In the latest instalment of Housing Affordability Watch, we delve into the challenges of funding these vital upgrades and examine whether public pension funds could play a role. Read it here: What Lurks Beneath – The Hidden Infrastructure Crisis
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