- April.10/2024: Bank of Canada holds key interest rate at 5% which was expected. While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months. The Council will be looking for evidence that this downward momentum is sustained. Core measures of inflation, which had been running around 3½%, slowed to just over 3% in February, and 3 month annualized rates are suggesting a downward momentum. The Bank expects CPI inflation to be close to 3% during the first half of this year, move below 2½% in the second half, and reach the 2% inflation target in 2025. According to Statistics Canada, higher gasoline prices caused the annual inflation rate to go up a bit in March, but core inflation continued to cool for the month, raising the chances of an interest rate cut by the Bank of Canada in June. Statistics Canada stated its consumer price index for March was up 2.9 per cent compared with a year ago, up from a 2.8 per cent year over year increase in February. The next scheduled date for announcing the overnight rate target by the Bank of Canada is June 5, 2024.
Yesterday, the federal government unveiled the federal budget for 2024, presented by Deputy Prime Minister and Minister of Finance Chrystia Freeland. They include:
- Insured Mortgage Holders Exemption: One critical element of the budget is the exemption of insured mortgage holders from requalifying under the insured minimum qualifying rate when switching lenders at mortgage renewal. This is commendable and Mortgage Professionals Canada will continue to advocate for this measure to apply to all mortgages. The removal of the blanket stress test for renewals is excellent news for mortgage holders come renewal time.
- 30-year Amortization Period Extension: Next is the extension of the amortization period from 25 to 30 years for insured mortgages on newly built homes only for first-time buyers. This will help lower monthly payments and help families and young professionals in making their dream of homeownership more accessible and sustainable. Mortgage Professionals Canada stated that they look forward to working with the government to level the playing field for all homebuyers and securing the extension of the amortization for all Canadians. The change will take effect Aug. 1. Under the current rules, if a down payment is less than 20% of the home price, the longest allowable amortization, the length of time a homeowner has to repay their mortgage, is 25 years. Mortgage Professionals Canada CEO called it a “step in the right direction” and said extending the amortization period “will help level the playing field for first-time homebuyers.” “We know that this is going to allow greater opportunities for home ownership and will ultimately contribute to economic revival and economic recovery,” she said in an interview. “But more still needs to be done for all Canadians to have that dream of home ownership within sight.” She said the government should expand the option to all Canadians purchasing a home, regardless of whether it is a new build or a pre-existing home. “There are a lot of areas, particularly in the Greater Vancouver area and in the Greater Toronto Area, where you have no choice but to build up, so the possibility for new builds are not the same across the country.” Other mortgage/real estate specialists have voiced the following concerns about how effective the change would be based on the eligibility criteria. While it’s currently possible to get an insured mortgage with a new build, it’s rare. Many properties in Vancouver and Toronto are priced at more than $1 million, which typically means buyers have to take uninsured mortgages. Mortgage Professional Canada stated they will continue to push for the creation of a permanent housing roundtable; to fight for insured mortgage threshold to go from $1M to $1.25 and will be on the lookout for any consequences to the increased taxation on capital gains. Another huge factor to consider in all this voiced by many potential buyers is builders quite often require large deposits for the new builds. This results in first time home buyers receiving gifted down payments from parents and other close relatives which further puts a strain on other’s finances in order to purchase their own home.
- Enhanced Income Verification Processes: MPC further applauds the government’s initiative to partner with the mortgage industry to explore income verification processes through the Canada Revenue Agency (CRA) to combat mortgage fraud. A long-standing policy solution championed by MPC, this critical step will empower mortgage professionals with the tools to help the government crackdown on mortgage fraud.
- As part of the announcement, Freeland also said the government will raise the amount first-time homebuyers can withdraw from their RRSPs to $60,000 from $35,000 to buy a home. That will take effect April 16, the day the federal budget was released. The government said the change reflects the reality that the size of a down payment and the amount of time needed to save up for one are much larger than they used to be. People who have made or will make withdrawals between Jan. 1, 2022, and Dec. 31, 2025, are also getting more time to begin repayment, up to five years in total rather than two.
- Ottawa said those changes are meant to work in tandem with the First Home Savings Account, which it launched last year. The rules governing that program allow prospective homebuyers to start saving for up to 15 years once they open an account, with an annual $8,000 deposit cap and a lifetime contribution limit of $40,000. Freeland said more than 750,000 Canadians have opened an FHSA to date. While the program came online April 1 of last year, most Canadian financial institutions only began offering the account as of last summer or fall.
- Ottawa also announced changes to the Canadian Mortgage Charter that will include an expectation that financial institutions offer permanent amortization relief to protect existing homeowners who meet certain eligibility criteria. That would allow eligible homeowners to reduce their monthly mortgage payment to a number they can afford for as long as needed.
- While immigration has always been the foundation of Canada’s population growth, Chrystia Freeland stated recently while in Ontario that they will match immigration to housing, we are to assume this is moving forward. Presently there is a great disproportion between the two resulting in many sects of the economy to conclude in causing the supply shortage in housing. Statistics Canada said Canada’s population increased by more than a million people for the first time in history in 2022 alone, almost entirely due to a surge in immigrants and temporary residents. The country has heard many reasons for these historical levels of immigration post Covid, the major ones being solving the labour shortage and most recently avoiding a recession in early 2024. While Canada will always welcome foreigners on humanitarian grounds, many industry experts are suggesting for the government to slow the rest of immigration until housing can catch up. Others are suggesting the same but suggesting to be more selective for example the construction industry to aid in building homes.
- In summary, as Canadians, it is always to our advantage for our government at the Federal, Provincial, and Municipal level to succeed, good luck!
Sources: Bank of Canada, Mortgage Professionals Canada, CMT, Statistics Canada (including immigration/population chart picture)