Around the same time the Toronto Real Estate Board, along with other real estate boards across the country, released their four recommendations for how government can remove barriers to home ownership, the Canadian Real Estate Association released its own recommendations via the Election 2019 Resource Hub for REALTORS®.
The Hub is called REALideas, and it has all the policy recommendations that the leading political parties should take into consideration when releasing their platforms in the coming weeks.
The CREA recognizes that all real estate is local, so of course there are markets in Canada right now that are in fact over supplied. Ontario is not one of them. The CREA may have the answer though. When municipalities request funding from the federal government to complete infrastructure projects, the feds should place conditions on the investments to encourage new housing.
Mortgage stress test
Ever since the beginning of 2018, the mortgage stress test has been a hot topic. The CREA points out that an unintended consequence of the stress test is that more buyers are simply moving to less-regulated lenders, which is resulting in borrowers paying even higher interest rates.
The stress test should reflect local market conditions and be based on average home prices, sales activity, employment, average income, cost of living, etc. The CREA also believes that existing mortgage holders should be exempt from the stress test when researching new lenders so they don’t feel tied to their current lender. Mortgage holders are exempt from the stress test if they renew with their current holder, which isn’t fair because it decreases their choices.
Modernize mortgage lending
Employment trends are changing, so mortgage lending should, too. The gig economy is the term for a market system that relies heavily on temporary positions, short-term contracts, and freelancers.
Mortgage lenders typically want to see financial stability. Something like fluctuating income is a red flag today, but it shouldn’t be as more millennials are participating in the gig economy. Lenders should still be protected as much as possible and only lend to those who can actually afford it, but the way they determine who gets approved needs to be updated.
Update the First-Time Home Buyer’s Tax Credit
The HBTC was introduced in 2009 as a way to help first-time buyers with closing costs. It’s currently $750. A decade later, home prices are much higher and so are closing costs, yet the HBTC hasn’t changed. The CREA wants to see the HBTC increased to $2,500. Closing costs can amount to 1.5% to 4% of the purchase price, and these costs can’t be lumped into the mortgage.
The definition of “first-time buyer”
The Candian government considers a first-time buyer someone who “did not live in another home owned by them or their spouse or common-law partner in the year of acquisition or in any of the four preceding years.”
In the United States, a first-time buyer is also anyone who is “a single parent who has only owned a home with a former spouse while married; or a displaced homemaker who has only owned with a spouse.”
The CREA wants the definition of a first-time buyer expanded to match the above. This will allow more people to take advantage of first-time buyer incentives that are available.
A 30-year amortization is available for uninsured mortgages, but if you put down less than 20% on your home, which many younger buyers do, then they need insurance on the mortgage, and 30-year amortizations aren’t an option for insured mortgages. The CREA wants this to change.
The CREA provides this example to show how a longer mortgage period can save on monthly costs: “A $472,000 home with a 10% down payment and a 5-year fixed rate mortgage at 3.74% would have monthly payments of $2,242 on a 25-year amortization. The same mortgage with a 30-year amortization would have monthly payments of $2,019–a difference of $223.”
If this rule changed, it would add 15,000 to 20,000 potential buyers to the market!
We highly recommend keeping an eye on REALideas because it will be updated as the leading political parties release more platform details.