Time for your cheat sheet on this week’s top stories.
Canadian Election 2019
The Liberals promise to increase the first-time home buyer incentive (FTHBI), in Toronto, Vancouver, and Victoria. Previous limits were designed to prevent homebuyers from inflating those very markets. However, it’s election season, so we’re throwing money around regardless of whether it makes sense. All parties are promising to do that, so don’t think we’re picking on the Liberals.
The program is billed as a way to make housing affordable, by helping to increase the down payment. However, similar programs are used to increase demand, and prevent prices from falling. By raising the limits in high priced markets, they’re providing more demand stimulus. That usually leads to the opposite of improving affordability. What they’re doing is making it easier to carry even larger debt loads.
The Conservative Party of Canada (CPC) is promoting a housing plan, they warned about just 7 years ago. If elected, they would extend first-time buyer amortizations to 30 years. This would lower monthly payments by about ~8-12%, while increasing interest paid ~20-25%. It’s not so much a strategy for affordability, so much as it’s one to increase the debt load you can carry.
The same party, under Harper, fought to eliminate these types of loans just seven years ago. After they were extended under the party, of course. The Bank of Canada in 2008 called extending amortizations “disturbing.” CPC finance minister Flahrety shortened amortizations back to 25 years in 2012. At the time, he said it will “ensure households do not become overextended.” Now the party thinks it is “time to get ahead,” by proposing you risk becoming overextended.
The NDP housing plan wants to help low income renters, but is likely to prop up unsustainably high prices. The party’s housing platform looks to provide immediate relief in the form of rent subsidies. At first, it seems like giving cash to households to pay their rent might take some pressure off.
Other markets with rental subsidies for privately owned rentals, saw the opposite. Landlords increased prices for potentially assisted tenants. The additional cash means low income renters could more readily absorb price increases. This can have a ripple effect, sending prices up across the board. Higher rental prices, mean better returns for investors, helping to improve the long-term outlook of higher prices.
Canadian Real Estate
UBS, the Swiss mega investment bank, is seeing interest rates collapse around the world, but home prices aren’t rising. In fact, they’re seeing a negative trend in home prices, even with easier financing. Buyers are failing to increase in significant numbers, as economic uncertainty and low growth outweigh the positives. The global trend is deteriorating, but as Toronto prices fail to fall – the city climbs the bubble list. The city has reclaimed the number two largest bubble in the world.
Canadians are back to withdrawing home equity at a rapid pace, after briefly slowing down. The balance of loans secured by homes hit $303.16 billion in July, up $930 million from the month before. The balance increased 4.65% from last year, showing 63.15% more growth than it did this time last year. This is the second highest annual growth for the month of July, in the past seven years of available filings.
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