2019 Budget Impact on Housing – Is it Good News All the Way?
Measure to Boost Home Ownership for First Time Buyers
Key Highlights of Impact on Real Estate
With the upcoming Federal elections, the Liberal government is wanting to help Canadians buy their first homes by picking up a portion of their mortgage costs and increasing the amount they can borrow from their retirement savings for a down payment. Word of caution, the cost that CMHC will pick up for you, will eventually have to be paid back, interest-free though. This option will be only be available to households with incomes under $120,000.
This is being received as a welcome news given the soaring real-estate prices across major cities in Canada, making home ownership a distant dream for many. Eligible buyers would see the government pick up part of the costs of their mortgages to lower their monthly payments, with the amount of help determined by their incomes and whether they’re buying an existing or newly built home.
Changes are also being planned to allow Canadians to raise the amount they can pull from their retirement savings plans to fund the purchase of their first homes, from $25,000 to $35,000, and to allow people whose marriages or common-law partnerships break down to dip into those savings a second time.
The Liberal government is also vowing to build 42,500 new housing units in low-supply areas for rentals over the next nine years. This is subject to Liberal Party winning October 2019 elections.
First Time Buyers Alert
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The measure, expected to cost $1.25 billion over three years beginning this fiscal year, would target Canadians “that face legitimate challenges entering housing markets” after qualifying for a mortgage, the budget document says. An additional $100 million would flow to the Canada Mortgage and Housing Corporation to help organizations that already provide the so-called “shared equity mortgages.”
The government will recover its costs when the house is sold, although the budget document isn’t clear what would happen if the home is sold for a loss.
The new measures could increase the annual number of new homebuyers nationally to 140,000 from 100,000 by lowering monthly payments without creating higher household debt loads, as per Finance Minister Bill Morneau. He is confident the measures won’t cause a spike in housing prices.
Some experts feel that the measures appear to target people who would be willing to rent or buy smaller condominium units, for example, outside a major urban center.
Our Two Cents
If we look at our GTA market, we agree that some first time home buyers will still remain maxed out of the housing market in Toronto, including condos. They will have to look at condos in Mississauga & the rest of the GTA, to stay within the maximum property value they can purchase.
We strongly feel that this measure will immediately make condo prices soar, even though the offer kicks-in only in September 2019. Basically, there is nothing less than $500,000 available in Toronto condo market and whatever is available in Mississauga condos, will now shoot up. The average price of a decent 1 BR condo in Mississauga any case is $400,000+. If we do the simple math, anyone with a household income of $100,000 will qualify for a mortgage loan of $400,000. It will be very hard for them to find anything as there will be limited inventory available in this price range. Buyers with a combined household incomes of $105,000 – $120,000 will have better chances of finding a decent 1 BR or a 1 BR + Den to a max of $480,000.
With the new rules, the prices of 1 BR and 1BR + den will shoot up quickly, much before or by end of year. So these new rules will be of little help or may not be applicable for buyers as potential properties can be out of range.
Summary of the proposed 2019 Budget plan for First Time Home Buyers:
CMHC to provide First Time Home Buyer with up to 10% towards their purchases
· This is not a replacement of your down payment, instead a payment free loan on top of the down payment buyers are required to have towards their purchase
· CMHC will match up to 5% on resale homes and 10% on newly constructed homes
· CMHC would take an equity stake in the buyer’s home for the amount contributed
For example: purchase of new home worth $500,000
· Down payment of 5% of $25,000; Loan would have been $475,000
· Now CMHC will provide $50,000 (10% of the price as equity stake)
· Loan taken is now reduced to $425,000 (helping reduce monthly payments by approximately $250 per month)
· Loan is paid back upon sale of the home, or sooner if the buyer wishes
· Income should be below $120,000 per year per household
· Home purchase limit of $505,000
Home Buyer Plan increase from $25,000 to $35,000
· Withdraw up to $35,000 from your RRSPs towards your home purchase
· Payback is from years 3 thru 15, years 1 and 2 given as grace period