First Time Home Buyer Loans In a Down Cycle

Steve Saretsky -

As expected, the federal Government unveiled the details of their first time home buyer scheme which was initially promised a few months ago. Basically the Government will become an equity partner in your home and share both the upside or the downside of your home purchase, backed by the Canadian taxpayer.

At first glance it feels like an awkward big brother type of deal. Of course the Government is always backwards looking and seems to have brought in this policy at the worst possible time. After a multi-decade long run-up in home prices the Government has decided now is the best time to leverage taxpayer dollars into homes for first time buyers. This will likely be a losing proposition, at least in the near term as the National Home Price Index drifts into negative territory.

Although, on a more positive note, CMHC is limiting the scheme to people whose mortgage and incentive are less than or equal to four times their total gross income. In other words, their ability to leverage will actually decline under this program. As a result, Rate Spy calls this first time buyer program a “bridge to nowhere” as it will likely receive little use. Although if you want to lower your monthly payments it will certainly help there.

First Time Home Buyer Incentive

Again, this was probably by design as CMHC, OSFI, and other policy makers have been determined to clamp down on household debt. Over the years they’ve done a better job limiting their exposure to the residential mortgage market. Since Q3 2009 Insured mortgage growth has been a tepid 1.4% compared to 11.6% for uninsured loans.

Insured vs uninsured loan growth at Canadian banks.

But alas, still lots of work to be done. Mortgage payments jumped 7.3% year-over-year in the first quarter to $91.42 billion and HELOC growth remains pretty strong. Canadians are still borrowing, just not as much as they used to.

HELOC growth at the big 6 Canadian Banks.


Join the Monday Newsletter

Every Monday morning you'll receive a short and entertaining round-up of news on the Vancouver & Canadian Real Estate markets.

"*" indicates required fields

The Canadian Economy

Steve Saretsky -

Happy Monday Morning! We got a string of new data this past week confirming inflation in consumer goods, and housing are proving to be more than transitory. Canada’s consumer price index continued to drift higher with prices hitting an 18 year high, up 4.7% from last October. The recent floods in BC...

Steve Saretsky -

The calls for impending interest rate hikes continues. CIBC’s chief economist, Benjamin Tal, was out recently suggesting the Bank of Canada could hike its benchmark interest rate at least six times beginning in early 2022. “I think there is a risk of getting into the market at today’s rates,” noted Tal....

Steve Saretsky -

The BC Government announced it is looking at several cooling measures for the housing market in 2022. They have highlighted two measures. The first is an end to the blind bidding process, and the other is a mandatory “cooling off period” which will allow any buyer a 7 day recession...

Steve Saretsky -

The Bank of Canada continues to slowly drain liquidity after flooding the system with a firehose of cash during the pandemic. Bank of Canada governor Tiff Macklem announced the end of Canada’s QE program (also known as money printing). Furthermore, in Macklems words, “We expect to begin increasing our policy...

Steve Saretsky -

Consumer price inflation ripped higher in September, surging 4.4% year-over-year, the fastest pace of price increases in 18 years. Let’s discuss this further. We have an inflation problem and the Bank of Canada remains of the view that inflation will be transitory. Although they really can’t say otherwise, for if...

Get the Saretsky Report to your email every month

The Saretsky Report. December 2022