Impact of First Time Home Buyer Incentive on Home Prices
Impact of First Time Home Buyer Incentive 2020
The latest federal fiscal update talks about revamping the First-Time Home Buyer Incentive (FTHBI) announced in September 2019, for those seeking to purchase a house in Vancouver, Victoria and Toronto. The Liberal government is doing this as an attempt to help first time home buyers in some of Canada’s most expensive real estate markets.
What is this First Time Home Buyer Incentive
The government will provide qualifying applicants with a 0% interest loan to boost their down payment by either 5% or up to 10% (for new construction) in exchange for an equally corresponding equity share in the home.
The interest-free down payment top up allows buyers to take a smaller mortgage with lower monthly payments, interest expenses and default insurance premium. But after 25 years or when the home sold, whichever comes first, homeowners must pay a portion of their property value back to the government.
Learn More At Government’s Official Site For First Time Home Buyer Incentive
What change is being proposed now for Toronto, Vancouver and Victoria
To make homeownership more affordable, the government launched the $1.25 billion First-Time Home Buyer Incentive in September 2019, which gives eligible first-time home buyers the ability to lower their borrowing costs by sharing the cost of buying a home with the government. The government is expanding the First-Time Home Buyer Incentive to enhance eligibility in the higher priced markets of Toronto, Vancouver and Victoria.
This will help to make home ownership more affordable for Canadians who are buying their first home in these cities. To help people in Toronto, Vancouver and Victoria buy a house, the expansion will be available to eligible buyers to purchase a home up to 4.5 times their household income, an increase from the current limit of 4 times household income. Additionally, the eligible buyer’s income threshold is being raised from $120,000 to $150,000 for Toronto, Vancouver and Victoria.
These changes will come into effect in spring 2021. With a minimum down payment, this targeted expansion will raise the maximum house price for eligible first-time home buyers in these cities from about $505,000—the current program parameters—to about $722,000.
Source: Government of Canada Fall Economic Statement 2020.
What has the reaction been to the 2019 First Time Buyer Incentive
The program which intended to help up to 100,000 first-time buyers, received a little over 9,500 application approvals in its first year, as per the Canada Mortgage and Housing Corporation (CMHC). Some mortgage industry folks believe that the 2021 version of the incentive will likely be more popular.
Will the incentive move home prices up
Theoretically, any government program that helps people buy homes, could drive up property prices. However, with numbers from 2019, the uptick is not expected to be too high to impact property prices. So not so much on account to this incentive, but there would be a general growth in prices as a natural real estate trend.
There could be some impact for sure with the constant demand and supply issue giving rise to multiple bidding scenarios for single family homes like townhomes, semi-detached and detached homes. Condos have taken a bit of the backseat in 2020 thanks to the COVID 19 pandemic. Condo prices have not been increasing like wildfire as they did in the latter part of 2019 and early 2020.
Of the three markets (Vancouver, Victoria, Toronto), let’s take a closer look at Toronto
The latest RE/MAX Housing Market Outlook for Toronto calls for a 6% increase in average price to approximately $974,015 across all property types and to favour sellers in 2021.
Will the incentive really help buyers
The incentive may not actually do much for first time buyers to get into the market, since applicants have to come up with their own money for a minimum of 5% down payment. An interest-free down payment top-up will help for sure, but with current low mortgage rates, the monthly expenses are already low. In fact, currently banks like the HSBC are offering under 1% mortgage interest rate.
The maximum price cap of $722,000 falls well short of detached or semi-detached home prices in Toronto, or elsewhere in the GTA. It surely supports condos in Toronto.
So is it an attempt to boost the struggling condo market in Toronto? Surely seems like it.
Also with the increased immigration numbers for 2021, it does seem to support condos as the real estate entry point for first time home buyers, be they newcomers, people on work permit or millennials and other regular first time home buyers.