As the Canadian housing market continues to grapple with affordability challenges and fluctuating demand, housing industry experts are optimistic about the new mortgage rules set to take effect on December 15, 2024. These changes, aimed primarily at first-time homebuyers and those purchasing new builds, are expected to provide a much-needed boost to the market. However, experts caution that the positive effects may be short-lived due to underlying issues that remain unaddressed.
Key Changes to Mortgage Rules
The federal government has introduced two significant changes to mortgage regulations:
Expanded Access to 30-Year Amortizations: This rule allows all first-time homebuyers and buyers of new builds to access 30-year amortizations, which can significantly reduce monthly mortgage payments.
Increased Insured Mortgage Limit: The insured mortgage limit will rise to $1.5 million, making it easier for buyers in high-cost markets such as Toronto and Vancouver to qualify for mortgages with down payments below 20%.
These changes, as analyzed in a recent report by TD Economist Rishi Sondhi, are expected to stimulate some activity in the housing market. However, Sondhi emphasizes that these measures alone are unlikely to trigger a housing boom. Instead, they will likely serve as a secondary tailwind to a market that is already gaining traction due to lower borrowing costs and a gradually improving economy.
The Catch-22 of Increased Demand
While the new rules are designed to help first-time buyers enter the market, they also present a catch-22 scenario. Increased demand from these buyers could drive home prices higher, ultimately eroding the affordability that the new measures aim to provide. Karen Yolevski, COO of Royal LePage Real Estate Services Ltd., echoes this sentiment, stating, “There’s no silver bullet solution to help boost the Canadian real estate market.” She emphasizes that while any new rules aiding first-time homebuyers are welcome, they do not address the fundamental issues of affordability and supply.
Rule #1: Extended Mortgage Amortizations
The first rule, which extends mortgage amortizations to 30 years, is projected to increase the purchasing power of first-time homebuyers by approximately 9%. However, this benefit is limited to a relatively small segment of the market, as only 44% of sales involve first-time buyers, and just 20% of mortgages issued this year have been in the insured space. While TD Economics predicts that the share of insured mortgages may rise following these changes, the overall market impact is expected to remain limited.
Rule #2: Insured Mortgage Cap Increase
The second rule, which raises the insured mortgage threshold to $1.5 million, could significantly benefit buyers in high-cost markets. For instance, a buyer purchasing a $1.2 million detached home in Toronto could now make a down payment of $95,000 instead of $240,000 under the current rules. TD Economics estimates that about 20% of homes in Canada are priced between $1 million and $1.5 million, indicating a potential boost in market activity from this policy.
Projected Market Impact
Sondhi anticipates a notable increase in home sales and prices in early 2025, contributing to what is expected to be a strong year overall. However, the impact of these new rules may be tempered by several factors. For instance, the extended amortizations benefit only first-time buyers, and the raised insured mortgage limit may not fully meet the needs of this group, as many still struggle to afford homes in the targeted price range.
Yolevski points out that many Canadians, particularly in Vancouver and Toronto, have been unable to save enough for a down payment due to rising real estate prices. While the new rules may provide temporary relief, she stresses the importance of addressing the long-term supply and affordability issues that plague the market.
Increased Buying Power for Some Canadians
Ron Butler, a veteran mortgage broker with Butler Mortgage Inc., estimates that these two changes combined could lift buying power by about 12%—8% from extending amortization to 30 years and 4% from raising the insured mortgage cap. He notes that any movement in the market, even if incremental, is positive news, especially when coupled with anticipated mortgage rate decreases.
In addition to these two key changes, two additional mortgage rules were announced. The first, effective November 21, 2024, exempts homeowners renewing a mortgage from the 2% stress test qualifying rate if they are transferring to another lender for a straight switch. This change simplifies the process of shopping for better rates. The second rule, effective January 15, 2025, allows homeowners to access up to 90% of their home’s value through default-insured refinancing to build secondary suites, aimed at increasing long-term rental supply in high-demand areas.
Future Changes on the Horizon
Industry experts suggest that more changes could be forthcoming, as introducing new rules does not incur costs for the government and allows them to appear proactive in addressing housing issues. However, while these rule changes may provide short-term relief, the focus must remain on mid- and long-term supply solutions to ensure that Canadians can truly benefit from a healthier housing market.
In conclusion, while the new mortgage rules set to take effect in December 2024 may provide a temporary boost to the Canadian housing market, they do not address the root causes of affordability and supply challenges. As the market evolves, it will be crucial for policymakers to implement effective, long-term strategies that promote sustainable growth and accessibility for all Canadians.
English 