New $1.5 million price cap, 30 year extended amortization.. Is it enough?

The Federal Government announced they would be extending the current amortization on insured mortgages (those buying with less than 20% down) to 30 years.  ONLY if you are a First-time buyer or you are buying a newly built home. I applaud this move but I would have liked for these 2 limitations to have been excluded. 

I would go further and say we should extend it to 35 or 40 years, maybe even 50 years!

They also announced they would increase the price cap on home purchases for insured mortgages from $1million to $1.5million.  This is not limited to first time buyers.  I like this move as it will help out many buyers looking to buy in the larger markets, where the housing shortages are more evident,  where home prices are regularly over $1million.  Of course, I’m talking about Vancouver ($1.2million) and Toronto ($1.02million).

These changes aren’t enough but they aren’t a nothing sandwich either. 

The government’s move is coming at a time when home prices have remained stubbornly high in most markets across the country. National average home sales price is $649k but if you exclude the smaller markets, it’s closer to $900k.  And if you go into Vancouver and Toronto it’s well over $1 million.  Rents have also remained unaffordable at over $2100/mth nationally and over $2800/mth in most larger urban markets. 

These mortgage rules will help a little but I would have liked to have seen more.  The slow moderate changes aren’t enough. It’s like using a garden hose to put out a forest fire.  Affordable housing should be the top priority for this government. Judging from their actions, they don’t seem to be taking it seriously enough.  The housing crisis is real.  For people in Ontario and BC, it is even more real.  Here’s a good report from June 2022. It’s still very relevant and accurate today. Here’s the link to the CMHC report entitled Housing Shortages in Canada: Solving the Affordability Crisis https://bit.ly/3zdcpvl

Some stats from the report that are mind-boggling…

-we need an additional 3.5 million housing units beyond current projections to restore affordability. Spoiler alert.. that ain’t gonna happen.

-the problem is concentrated to BC and Ontario…2/3rds of the 3.5 million housing unit gap are in Ontario and BC. 

-in 2003-04, an average household would have to devote close to 40% of their disposable income to buy an average house in Ontario and close to 45% to buy in BC.

-in 2021, that figure jumped to 60% of their incomes. Yikes. This is not sustainable.

CMHC HOUSING STATS JUST RELEASED…

And not to rain on the parade but this just came out… Canada Mortgage and Housing Corporation (CMHC) just released August numbers and it’s not good. It’s reported we had 217,000 housing starts compared with 279,000 in July. This is the lowest level since November 2023.  We need to do better.  I’m sure the Federal government didn’t want this statistic to come out a day after their big 30 yr amortization and $1.5million price cap announcement.

Lower interest rates will help but we need to move faster on this.  It’s about affordability. Interest rates need to come down by another 1.00% and fast. Last year, the former Bank of Canada Governor, Stephen Poloz said we should consider a 50 year amortization mortgage.  Perhaps lowering mortgage payments will motivate home builders to build more if they see buyers can actually qualify?  

50 YEAR AMORTIZATION?

A $500,000 mortgage with a 30 year amortization costs is $2639/mth.  A 50 year amortization is $2218/mth. If you think this is crazy, I’ll put it another way.  Given the choice, which of these options would you choose?  Renting a condo or townhouse for $3000/mth with no guarantees that the owner might sell and evict you (your landlord can sell the home and evict you with notice and we’ve seen a lot of that happen over the last few years) or buying and owning a home with a $2218/mth payment on a  $500,000 mortgage? 

It sounds radical, I know. But there aren’t many other options remaining. And for those that think Canadians go the full distance on their 25 and 30 year amortizations, think again. On average, Canadians pay their mortgage off in less than 20 years. Today, approximately 28% of Canadians own their homes with no mortgage. And 31% of Canadians are renting. We need to get the home ownership numbers up.  People come to Canada for the Canadian dream. Home ownership is a big part of that dream. There’s this thing called ‘pride of ownership’.   Ever notice the difference between a home that is owned compared to one that is rented?  We take better care of things we own.   We also feel better.

There’s also another intangible that we don’t talk about. A good friend in a senior management position with a major corporation once told me he wants his staff to own a home and have a mortgage. They tend to be more productive employees. They are motivated to perform better when they have a mortgage to pay.  You and I may disagree on this but it’s something I’ve heard before.

My advice…

Keep the faith. Stay positive. There are solutions to our housing problems.  And seek out a mortgage professional if you are even thinking of owning. Get a plan in place. It is still very possible to own a home in Canada. 

Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.

Steve Garganis: 416-224-0114; steve@canadamortgagenews.ca