Everyone’s talking about budget housing measures but there’s risk

While there could be some near-term gains, it could lead to pain later

Everyone’s talking about budget housing measures but there’s risk

One of the most talked-about features of the federal budget was the range of measures to help first-time homebuyers.

But while there have been many positive opinions expressed, there are still some key issues that were not addressed; and some potentially negative outcomes ahead.

Along with concerns about a lack of sentiment-boosting measures for the investment markets expressed by IIAC, the housing market plans could also fall short.

While many real estate industry bodies have welcomed the First-Time Buyers’ Incentive and the increased level of withdrawals allowed from RRSPs via the Home Buyers’ Plan, there is frustration that the mortgage stress test has not been amended. And supply-side issues have not ben fully addressed.

“Millennials are passionate about owning their own home, but many are worried they will never be able to because of higher home prices and tougher mortgage qualifying rules,” said Barb Sukkau, president of the Canadian Real Estate Association.

Price spike, debt burden
There are also concerns that the boost to first-time buyers, while opening a near-term window to allow side-lined buyers to act, will drive up home prices, exacerbating affordability issues.

RBC Economics’ senior economist Robert Hogue is warning that the spring and summer housing markets may be subdued as first-time buyers wait until September when they can access the new federal incentives.

That could mean a price spike in the fall and with Hogue seeing little scope for buyers in Vancouver and Toronto anyway, due to the incentive’s limits, millennials’ housing hopes could soon fade.

Hogue also warns of the longer-term impact for those first-timers who do manage to take advantage of the federal government’s measures.

He says that the shared equity mortgages are likely to just offer “another form of debt” with second mortgages on homes that will need to be repaid.

Mortgage stress tests
Meanwhile, real estate bodies are keen that the government should look at further measures to boost supply, consider changes to the mortgage stress tests, and re-instate 30-year insured loans.

John DiMichele, CEO of Toronto Real Estate Board, says that restrictions on 30-year insured loans and stress tests are not warranted in current market conditions.

“This is especially true at a time when first-time buyers are facing serious challenges in achieving the dream of home ownership. We applaud the federal government for acknowledging that housing issues are a top priority for Canadians, but current mortgage restrictions still need to be addressed,” he said.

CREA says that it is encouraged that the federal government is carefully monitoring the effects of B-20 mortgage regulations with a view to limiting negative impacts on housing markets that are in balance or struggling, and on economic growth in Canada.