(Toronto) The head of the Canadian housing agency says measures such as extending mortgage amortizations and changing the eligibility threshold for an insured mortgage are not the answer to housing affordability problems in the country.
Although homeowners have seen a rapid increase in their mortgage payments as interest rates have risen, Canada Mortgage and Housing Corporation (CMHC) President and CEO Romy Bowers is not in favor of borrowers repaying their mortgages over longer periods.
“It makes credit more accessible,” she told The Canadian Press.
“It reduces the monthly payment, but it actually increases the cost to the owner over time. »
Under Canadian lending regulations and standards, borrowers must repay their mortgage over a maximum of 25 years if their down payment is less than 20% of the purchase price of the home .
However, a borrower whose down payment is at least 20% of the purchase price can benefit from a maximum amortization period of 30 years.
Proponents of longer amortization periods argue that they give borrowers more flexibility and help them balance their monthly budgets. Critics counter that longer amortization translates to higher interest costs over the life of the mortgage, which means home equity accumulates more slowly.
“What worries me is that sometimes it seems like a quick fix,” Ms.me Bowers, about the possibility of extending amortizations.
“If you only have 30-year amortizations, everyone’s mortgage payments will drop by $200 and they can actually afford the house, but if you’re in a market where supply is limited and this is your solution, it will not solve the problem in the long term,” she stressed.
CMHC believes the current focus should be on increasing the supply of available homes, as the shortage is what is driving prices up.
“What we need to do is increase supply to develop a more balanced market and have more homes at different prices, so that people don’t have to spend so much money on mortgage debt. »
M’s point of viewme Bowers relies in part on what happened in the UK, where the government introduced a scheme that gave first-time home buyers in London “generous” grants for down payment.
When the program was later evaluated, explained Mr.me Bowers, they found that start-up home prices rose by the exact amount of the government subsidy, essentially negating any affordability gains.
Likewise, she said, extending the amortization period “is not a winning formula, because it drives up property prices.”
Prices are rising again
The start of 2023 saw blistering demand in the housing market ease as borrowing costs rose, but Canadians then began to pull away from the housing market, pushing up again the costs.
The Canadian Real Estate Association (CREA) reported last week that the real national average house price reached $729,044 in May, up 3.2% from a year earlier, while the seasonally adjusted average home price was $715,290, up 2.7% from April.
The average price exceeded the 1 million mark in the Greater Toronto Area and several parts of British Columbia.
“Surges in new listings across the country eased supply and demand conditions in the majority of markets last month, but not enough to tip the balance in favor of buyers,” the economist explained. Royal Bank deputy chief Robert Hogue in a note to investors last week.
“Actually, the sellers continue to hold the strong hand at this point, which is why prices have appreciated lately. »
Mme Bowers, who took over as CMHC in April 2021, would like to see affordability improve. She says it will take multiple levels of government working together to quickly create more purpose-built rental housing, as well as other types of homes that meet buyer demands.
Many potential solutions were discussed, but she maintains that procurement must be the star of the plan.
However, she monitors the state of mortgages, which have become more expensive as house prices, mortgage rates and interest rates have climbed in recent years.
There is also a limit on mortgage loan insurance, which is not available for houses costing more than 1 million.
CMHC’s insurance portfolio has little exposure to the Toronto and Vancouver markets, where house prices are the highest.
“If the role of the mortgage insurance system is to provide coverage across Canada, then is the $1 million cap a barrier? And what should be done? she asked.
“But I don’t see this change as a magical solution to the problem of housing affordability. »