First Time Home Buyer Incentive Will Benefit Sellers Not Buyers

Steve Saretsky -

Now that the Liberal Government has solidified its re-election bid we must now wait and see if they move ahead with their proposed housing policies. Let’s discuss the controversial first time home buyer incentive program which they promised to stimulate further.

Previously, the FTHBI’s maximum “leverage ratio” of 4:1 meant a first-time buyer’s mortgage + CMHC incentive couldn’t exceed four times their income. And total household income was capped at $120,000.

However, the Liberals have promised to boost that amount for first time buyers in Greater Toronto, Vancouver and Victoria. Qualifying incomes will be pushed up to $150,000 and mortgages and incentives up to 5x their income.

First time Home buyer incentive
CMHC First-time Home Buyer Incentive Limits

Of course this will only boost demand/ stimulus for homes priced under $790,000 where buyer demand remains strong and inventory remains tight, even in Vancouver.

Despite a significant correction in the broader housing market, activity remains robust for homes under $790,000 across Greater Vancouver. As of September, the sales to actives ratio for homes under $790,000 sits at 27%, this is still indicative of a sellers market.

sales / actives ratio for Greater Vancouver
Sales to Actives ratio for homes less than $790,000 in Greater Vancouver.

Meanwhile, months of inventory which is another popular metric to gauge market conditions, sits at just 3.7 as of September. A balanced market is considered anything between 4-6 months of inventory, anything below that is considered a sellers market.

Months of Inventory
Months of Inventory for homes under $790,000 in Greater Vancouver.

In other words, the Liberals proposed scheme to provide loans for first time home buyers up to a purchase price of $790,000 is likely to increase demand where inventory remains tight, ultimately shifting much of the benefits to home sellers, not home buyers. Another case of good intentions, bad policy.

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The Saretsky Report. December 2022