The federal budget included certain measures aimed at helping the Canadian housing market but there was no change to the mortgage stress test.
The government did announce help for first-time buyers though and that has been generally welcomed.
A $1.25 billion fund administered by the Canadian Mortgage and Housing Corporation (CMHC) over three years will provide 5% of the cost of an existing home and 10% of the price of a new home through what amounts to an interest-free loan to be repaid when the property is sold. The money would go to first-time home buyers applying for insured mortgages subject to certain conditions.
Dr Sherry Cooper, chief economist for Dominion Lending Centres, said it was a bold move although said she was awaiting clear details of how repayment would take place.
She also noted that, along with an increase in the tax-free withdrawal from RRSPs to $35,000 (from the previous $10,000) under the federal Home Buyers’ Plan, the measures focus on the demand side of housing not the badly-needed supply of affordable housing.
Builders urge swift implementation
The Canadian Home Builders’ Association is optimistic that supply will be helped by the budget measures.
“The new First-Time Home Buyer Incentive, which introduces shared equity mortgages for qualified first-time buyers, will make a difference if it meets the estimates government officials are suggesting: helping 100,000 Canadians achieve home ownership in the next three years. That impact would be similar to what CHBA’s proposed reintroduction of 30-year insured mortgages for first-time home buyers would achieve,” said CHBA CEO Kevin Lee. “This incentive cannot come soon enough, as many markets are very challenged right now. We hope the government will move very quickly to make it a reality.”
But Lee also urged the government to reconsider the mortgage stress test.
“Current restrictions on mortgage access mean that many millennials and new Canadians are seeing homeownership slipping away, and in many markets the economic impacts are substantial.”
Another form of debt
Not everyone is as positive about the first-time buyer mortgage plan.
RBC chief economist Craig Wright told the CBC that it was a “solution looking for a problem.”
And David MacDonald, senior economist for the Canadian Centre for Policy Alternatives warned that it’s just another form of debt that will need to be repaid.