Canada's New Mortgage Measures for First-Time Buyers, April 2024

Mortgage payments are one of the biggest factors for families in Canada. They shape whether you buy at all, and if you do, what price you can reach. There is a real difference between a 3,000 dollar monthly payment and a 10,000 dollar one, and everyone has the right to think hard about that number. This April the federal government moved on a few things aimed at first-time buyers.

I am Moe Asgarian, a senior real estate broker in Toronto. Let me walk through the main change and a few other market notes worth knowing.

The 30-year amortization for first-time buyers

The headline in April 2024 was that Canada is letting first-time buyers take a mortgage with a 30-year amortization. Amortization is just the window you have to pay the loan back. If you borrow one million dollars, your contract might require you to repay it over 25 years. The new rule says that if you are a first-time buyer, buying a new build under one million dollars, with an insured mortgage, which means your down payment is under 20%, you can stretch the amortization from 25 years to 30. So they added five years to the repayment. The point is to lower the pressure and make it a little easier to own. Worth knowing though: a lower monthly payment comes at a cost. Over 30 years you pay more interest than over 25, so you hand the bank more in total even while paying less each month. The plan takes effect August 1, 2024, and a lot of people call it a good step. Anything that helps people become owners more easily is a fair move.

Why the impact will be limited

I want to add a note. This is a fine policy, but I do not think this one change will move the housing market much. Here is why. Only a small share of buyers take insured mortgages with under 20% down and qualify this way. A decade or two ago maybe 45% of transactions were these buyers. Now across Canada it is about 18%, and in the GTA and Vancouver only around 8%. On top of that, for brand-new builds in the GTA, developers usually ask for 15 to 20% during the pre-construction period before they hand you the keys. If you are putting down 20%, your mortgage is not insured anymore, so this rule as written may have little or no effect in Toronto or Vancouver. It might help in other provinces or smaller cities, but not in the markets I just named.

A bigger RRSP withdrawal limit

The plan came with other pieces. Since homes have gotten expensive, they raised the tax-free withdrawal cap for first-time buyers. If you park money in an RRSP, you can use it for your first home purchase. The withdrawal cap from that account was 35,000 dollars, and they raised it to 60,000 dollars. That increase takes effect April 16. We are talking about first-time buyers, who usually have smaller budgets, so it is worth watching how many of them actually have that much cash sitting in a tax-sheltered account for the extra 25,000 dollars to matter.

Spring listings are climbing

Something interesting is happening with condo listings. In mid-April 2024, the number of condos for sale in the city of Toronto is above 5,000. For the condo market that is a notable figure and a sign the spring market is waking up. The last time we saw this kind of growth at this time of year was 2015. The freehold market, meaning detached houses, has passed 2,000 listings, though compared with the last seven years that is not a big jump. Looking at inventory, things are getting better for buyers. I think spring 2024 could be a good buyer's market. On the other hand, if you are selling, you can find good opportunities too, because homes in parts of the GTA are selling faster than usual, and that is a healthy sign for sellers.

CMHC's forecast and a new anti-fraud tool

CMHC, the official housing agency in Canada, put out a forecast. Given current conditions, it expects the average home price in 2025 to return to its 2022 level, and in 2026 to set a new record. Because rates are still high, it sees little price change this year, with drops in some regions, then growth from 2025 and a peak in 2026. They noted that about 138,000 housing units started construction last year in six major Canadian cities, and those will finish over the next three years. Even so, they see demand staying high, which keeps pushing prices up. The government also announced a platform to connect the banking and loan system to the Canada Revenue Agency. This can cut down on mortgage fraud. Before, some people inflated their income with fake paperwork, and banks could not check it against the tax agency. Now banks can verify your real income, the line 150 figure on your notice of assessment. People who could not truly qualify used to jump into offer nights and bid higher without worry. With this change that gets harder, which should take some heat out of the market. If you are watching from the US, this has been normal there for years through the IRS, but it is new in Canada.

If you want to know which of these changes actually applies to you, fill out the form at the bottom of this page or book a free consultation. Stay well and take care.