With new mortgage rules set to come into effect in December 2024, experts believe these changes will increase demand among potential homebuyers in Canada. However, despite this potential uptick in demand, supply issues remain the core challenge in addressing the country’s housing affordability crisis. This article explores the federal government's recent mortgage reforms and the ongoing challenges tied to housing supply.
Key Changes in Mortgage Rules
As part of its efforts to boost homeownership, the federal government has introduced two major changes:
- Price Cap Increase for Insured Mortgages: The price cap for insured mortgages will rise from $1 million to $1.5 million, allowing more homebuyers to qualify for a mortgage with less than a 20% down payment.
- Expansion of 30-Year Mortgage Amortization: This measure will now apply to all first-time homebuyers and those purchasing newly built homes, spreading out mortgage payments over 30 years to make monthly costs more manageable.
These changes come as part of the government’s broader strategy to address the housing affordability crisis, which has been exacerbated by a rapidly growing population and high housing costs.
Demand Will Increase, But Supply Is the Real Challenge
According to Lauren van den Berg, president of Mortgage Professionals Canada, these changes could stimulate demand, as many potential homebuyers have been sidelined due to affordability issues. Van den Berg explained that while people are excited about the prospect of homeownership, the ongoing supply shortage continues to dampen their optimism.
However, Jimmy Jean, chief economist at Desjardins, provided a more cautious outlook. He referred to the mortgage rule changes as a "debt finance solution to affordability," noting that while the changes might make it easier to enter the market, buyers will ultimately pay more interest over time. Jean emphasized that addressing demand alone isn’t enough; the lack of housing supply remains the key issue.
Supply Constraints and the Housing Crisis
Canada is grappling with a significant housing shortage. The Canada Mortgage and Housing Corporation (CMHC) estimates that the country needs to build 3.5 million additional homes by 2030 to restore affordability to 2004 levels. This is on top of the 2.3 million units already expected to be built by then. Meeting this ambitious target will require substantial investment in both labor and capital, which could strain other parts of the economy.
Benjamin Tal, deputy chief economist at CIBC Capital Markets, echoed this concern. While he agreed that the mortgage rule changes could help accelerate the recovery of the housing market, he stressed that the additional demand created by these reforms would only exacerbate the supply problem unless housing construction also picks up.
Potential Impact on Homebuyers
The mortgage rule amendments have been received positively by industry professionals, as they could open the door for many prospective buyers. As interest rates begin to fall, van den Berg mentioned a growing "cautious optimism" among buyers who have been waiting for more favorable conditions.
The changes could also relieve some of the immediate financial pressure on buyers, particularly first-time homebuyers, by allowing them to qualify for insured mortgages with lower down payments and stretch out their mortgage payments over 30 years. However, as Jean noted, this approach does not address the fundamental supply shortages that are keeping housing prices high.
Supply Remains the Core Issue
While Ottawa’s mortgage rule changes are expected to stimulate demand in the housing market, the real estate sector’s supply challenges continue to pose a significant obstacle. Experts agree that unless the government and other stakeholders prioritize increasing housing supply, the demand created by these reforms may further strain the already tight market. Long-term solutions, such as expanding housing construction and ensuring the availability of affordable homes, will be essential in tackling Canada’s housing affordability crisis.
In the meantime, prospective homebuyers can benefit from the new mortgage rules, but they should remain cautious of the broader market conditions, especially as supply issues continue to impact pricing and availability.
Sources:
The content of this article is for informational purposes only and should not be considered as financial, legal, or professional advice. Coldwell Banker Horizon Realty makes no representations as to the accuracy, completeness, or suitability of the information provided. Readers are encouraged to consult with qualified professionals regarding their specific real estate, financial, and legal circumstances. The views expressed in this article may not necessarily reflect the views of Coldwell Banker Horizon Realty or its agents. Real estate market conditions and government policies may change, and readers should verify the latest updates with appropriate professionals.
