Is the 2019 Federal Budget going to help our housing market? A perspective


Improving Affordability Today: Support for First-Time Home Buyers

To help make homeownership more affordable for first-time home buyers, Budget 2019 introduces the First-Time Home Buyer Incentive.

  • The Incentive would allow eligible first-time home buyers who have the minimum down payment for an insured mortgage to apply to finance a portion of their home purchase through a shared equity mortgage with Canada Mortgage and Housing Corporation (CMHC).
  • It is expected that approximately 100,000 first-time home buyers would be able to benefit from the Incentive over the next three years.
  • Since no ongoing payments would be required with the Incentive, Canadian families would have lower monthly mortgage payments. For example, if a borrower purchases a new $400,000 home with a 5 per cent down payment and a 10 per cent CMHC shared equity mortgage ($40,000), the borrower’s total mortgage size would be reduced from $380,000 to $340,000, reducing the borrower’s monthly mortgage costs by as much as $228 per month. Terms and conditions for the First-Time Home Buyer Incentive would be released by CMHC.
  • CMHC would offer qualified first-time home buyers a 10 per cent shared equity mortgage for a newly constructed home or a 5 per cent shared equity mortgage for an existing home. This larger shared equity mortgage for newly constructed homes could help encourage the home construction needed to address some of the housing supply shortages in Canada, particularly in our largest cities.
  • The First-Time Home Buyer Incentive would include eligibility criteria to ensure that the program helps those with legitimate needs while ensuring that participants are able to afford the homes they purchase. The Incentive would be available to first-time home buyers with household incomes under $120,000 per year. At the same time, participants’ insured mortgage and the Incentive amount cannot be greater than four times the participants’ annual household incomes.
Budget 2019 also proposes to increase the Home Buyers’ Plan withdrawal limit from $25,000 to $35,000, providing first-time home buyers with greater access to their Registered Retirement Savings Plan savings to buy a home.

 Working Together: Increasing Housing Supply Through Partnerships and Targeted Investments

In some of Canada's largest cities, many lower income and middle class Canadians are struggling to find, maintain, and afford a good place to live. 

Where housing supply is limited and new housing construction is not keeping up with demand, the cost to purchase or rent housing has risen to the point of unaffordability for many families. Increasing housing supply will help ensure that housing prices grow at a more moderate pace, keeping homeownership or renting more affordable for more Canadians and keeping markets accessible for future generations. To help more Canadians find a good, affordable place to live, Budget 2019 proposes to:

  • Help build 42,500 new housing units across Canada, with a particular focus in areas of low rental supply, through an expanded Rental Construction Financing Initiative. Budget 2019 makes available an additional $10 billion in financing over nine years, extending the program until 2027–28.
  • Invite communities and other groups to propose initiatives that break down barriers limiting new housing. This new Housing Supply Challenge will run through the Impact Canada Initiative, with funding of $300 million.
  • Get the best advice to increase housing supply that meets Canadians’ needs by supporting the recently announced Expert Panel on the Future of Housing Supply and Affordability, jointly established by the Government and the Province of British Columbia. CMHC will invest $4 million over two years to support the Panel’s work, and $5 million over two years for state-of-the-art housing supply modelling and related data collection.

Perspective courtesy of Tony Rossander, a mortgage broker with Dominion Lending : 

First of all, I think a lot of us are confused. I also need to preface this to say that the gov't was extremely focused on introducing a program that would NOT encourage price appreciation so we have to look at it from that standpoint. Having said that, there are a LOT of missing pieces: Does the gov't get a piece of your increased home equity if you sell at a profit? (hint...they will but not sure how much). Do they take a loss if you sell at a loss? (hint...they will but not sure how much). What if you want to refinance your home in the future? (hint, I'm pretty sure you'd have to pay out the gov't before you could get any additional money).

Positives: Any news that makes it easier for homeowners (albeit a very specified group) to buy a home is a good thing (given all of the restrictions that we've endured). As there is no payment to the gov't portion of the shared mortgage, clients will be saving some interest per month. That's a good thing. 

RRSP withdrawal limits for first time homebuyer's will be increasing to $35k (from $25k), effective immediately. That is a good thing as the extra $10k might be a difference maker for some between owning a home or not. My only caution would be that the period of time that you have to payback your RRSP (15 years) has NOT changed. So if you took out $25k from your RRSPS, you'd have to pay back 1/15 of it every year so $1,667 annually (or $139 per month). Now if you were to take out $35,000, you'd have to pay back $2,333 annually (or $194 per month). It's not drastic but something to be mindful of.

Some money has been allocated towards housing supply (arguably a larger issue than demand). 

Negatives: The gov't gets to own a piece of your home and ride the wave of home ownership with you. Total household income has to be under $120,000 AND the mortgage plus the gov't shared mortgage has to be less than 4 times the household income. The approximate max purchase price for any household will be about $500,000 so it's designed to help first time homebuyers outside of Greater Vancouver/Toronto areas. 

B.C. had a very similar, complicated approach that helped far fewer people than it had originally predicted and thus was eventually cancelled. I'm not suggesting that it will happen here but we had a similar situation that we can relate to.

Here's an interesting tidbit: A couple with an income of $120,000 taking advantage of this new program to purchase an existing home (so the gov't will kick in 5% of the purchase price), would be able to purchase a place for just over $490k. That same couple with the same income could afford to buy a home for about $550k WITHOUT using the new program. Why? Because with the new program, they're capped at 4 times their income (mortgage amount plus gov't shared mortgage). 

This budget is mostly focused on the demand side of housing and does not propose tax breaks or reduced red tape for builders which would ultimately help supply.

In Summary:

No budget is perfect. When I analyze anything I always separate myself from the source and look at what the actual details are, who they're trying to help, and to try and break them down based on my day to day activities and experience. This budget is quite different than what many in the industry were hoping for. Again it's great that it'll be helping first time homebuyer's but (in my opinion) the segment will be a very small one and thus the overall impact in our Greater Vancouver market will be negligible.