Is affordability back within reach for first-time buyers?

Efforts to get more Canadians into homes appear to have received a significant boost in recent weeks thanks to falling interest rates and the easing of mortgage qualification restrictions by the federal government.

Rising rates since 2022 squeezed affordability and pushed many hopeful buyers to the sidelines – but three Bank of Canada cuts since June and a recent dip in fixed mortgage rates have helped brighten their outlook.

This week saw another shot in the arm for first-time homebuyers as the federal government hiked its cap on insured mortgages to $1.5 million, allowing buyers to put forward a downpayment of under 20% on purchases up to that value, and expanded access to 30-year amortizations.

Canadians buying for the first-time, and those purchasing a newly built home, can now take out a three-decade amortization on their mortgage, further improving the prospects of those frozen out of the housing market.

Any move to bring affordability within sight of first-time buyers is welcome, according to Stefan McMillan (pictured), an agent with Mortgage Alliance based in Mississauga.

He noted the Bank of Canada’s recent decisions to bring its benchmark rate lower as a positive development for new buyers – with a drop in annual inflation to 2% suggesting further cuts are on the way. “It’s good that the Bank took aggressive approach on rates to curb inflation, which it has,” he said.

“They did reach their goal there. So we’re not out of the woods yet – but I think we’re heading in a positive direction.”

The government’s move to adjust mortgage qualification rules, McMillan said, was a fillip for new buyers. “Any time the government of Canada makes a very clear decision on improving the landscape for first-time buyers, in particular to get into homeownership, is [to be welcomed],” he said.

“The extended amortization to 30 years, and increasing the insured mortgage to $1.5 million, is a great [step] for individuals who are trying to get into homeownership. I have the tools now to assist them, to guide them into homeownership where beforehand, it posed a challenge – for instance, not having a required downpayment.”

Purchasing a home a distant dream for many despite changes

Still, McMillan cautioned that the government decision is more of a “good start” to improving affordability, rather than a concrete solution.

In pricier markets like Toronto and Vancouver, some Canadians previously pushed to the margins may now be able to re-enter the fray – but sky-high housing values are continuing to leave many with little real prospect of purchasing a home.

A recent RATESDOTCA report highlighted that with the average house price in Toronto hovering close to the $1.1 million mark, a household income of about $208,000 is required to afford a property – a daunting figure for any aspiring homebuyers, even under the new rules.

The study showed a gap of over $92,000 between average income in Toronto and the income required to buy a home, and in Vancouver the difference is even starker. British Columbia’s most populous city requires a household income of $227,000 to purchase the average property, compared with an average actual income of $115,790.

Toronto-based broker Elan Weintraub highlighted the struggles many buyers would still face despite the new changes in a recent interview with CMP.

What should agents and brokers be focusing on at present?

McMillan said staying apprised of the latest updates and positioning himself to provide clear and comprehensive advice to clients about what they mean for the market has been a key focus.

That’s especially important with a flurry of recent news – whether from the Bank of Canada or the government – with the potential to bring about a change in the mortgage outlook. “I’m observing what’s going on economically because there are a lot of things happening and many variables in place in terms of the housing environment as well,” he said.

“I’m keeping myself informed on what’s happening daily so I can assist clients to make the most prudent decision, whether it’s their first time purchasing a home, consolidating debt, or even investing in a property.”

CMP

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