New mortgage rules for first-time home buyers

Today on “keeping up with federal budget announcements coming out weeks before the actual federal budget announcement” is a policy change covering housing affordability.  

What happened: Canada is rolling out new housing affordability measures for first-time homebuyers, including extending maximum mortgage amortizations to 30 years and increasing the amount that can be withdrawn from an RRSP to buy a first home to $60,000.

• But there are some conditions. To snag a 30-year term, a buyer’s mortgage has to be insured (ruling out anything over $1 million) and go towards a newly built home.

Why it matters: Most young Canadians can’t afford to buy a home. Increasing repayment terms to 30 years would slightly increase the short-term affordability of homes (by ~$250 a month on a $500,000 mortgage at a 5% rate) and could incentivize builders to create supply. 

• Housing expert Mike Moffatt recently wrote that longer amortizations could help young Canadians enter the market while allowing them to get out of debt before retirement.  

Yes, but: According to housing economist Deny Sullivan, mortgage amortization extensions can also push up the price of homes by increasing demand, “offsetting the affordability gains, benefitting existing homeowners, and straddling new buyers with even larger mortgages.”

• Measures that would stoke demand aren’t a great idea in a market already struggling with a lack of supply, but the vibe from experts is that this won’t change much. 

Bottom line: At the same time, construction industry groups seem to be pretty happy with the new updates, which could be good news for a sector that is kind of on the hook to build the 3.1 million units that are necessary to close the housing gap by 2023.—SB