Only time will tell whether interest-rate cuts will inspire first-time home buyers to try out 30-year amortizations. Pedestrians pass by a house listed for sale in Toronto’s west end on July 4.Sammy Kogan/The Globe and Mail
When 30-year amortizations for first-time home buyers with insured mortgages were announced in the 2024 federal budget, the government hailed them as a revolutionary way to improve housing affordability for Canada’s beleaguered millennial home buyers.
The program – which applies to anyone buying their first home with less than 20-per-cent down, as long as it’s new construction – was officially rolled out at lenders across the country at the beginning of August. How has the uptake been? Well, if our own in-house lender’s numbers are any indication: crickets.
While official participation numbers have yet to be released by the federal government, the interest CanWise Financial (Ratehub.ca’s lender) has received thus far can only be described as lacklustre. Of the 290 mortgage applications received in August, just three – 1.03 per cent – requested the 30-year amortization option. It’s clear that clients are not clamouring for this.
And this is unlikely to surprise anyone working in the mortgage industry; doubts over the program’s efficacy have been raised from the start, largely due to the limited pool of who is eligible.
As CanWise broker of record James Laird and I wrote back in April, the plan appears logical on paper: provide targeted relief for first-time home buyers who’ve been grappling with both Canada’s high cost of housing and historically high interest rates. At the same time, the plan supports the construction and development industry, thereby spurring the creation of badly needed new supply.
In 2024, 55 per cent of home buyers could be considered first-timers, according to the Canada Mortgage and Housing Corp.’s (CMHC) 2024 State of Home Buying in Canada report. Of those first-time buyers taking out mortgages, 59 per cent have mortgage loan insurance.
But when you factor in the cost of newly built housing, particularly in Canada’s largest real estate markets such as Toronto, the numbers become largely unworkable.
For example, the Building Industry and Land Development Association (BILD) reports that in July, the benchmark price for a newly built condo unit in the Greater Toronto Area (GTA) was $1,020,179. That’s above the $1-million threshold to qualify for an insured mortgage, rendering the program largely moot in the region. Of course, there are units priced above and below the benchmark. But as CMHC’s report points out, 41 per cent of first-time home buyers live in a household with children. These families will likely demand units with at least two bedrooms, if not three; those are not the kind of units at the lower end of the price scale.
Using the program to purchase a newly built detached house is out of the question, given they come with a benchmark price tag of $1,585,881.
This relegates the program’s usage to markets where new builds can be constructed under that million-dollar threshold, which are largely in the Prairie provinces, as well as Quebec.
It will be interesting to see what the official numbers reflect, if and when the government chooses to divulge them. In the GTA, at least, they’re unlikely to move the dial on new-build sales; BILD also reports that July recorded an all-time low for transactions, down 48 per cent annually and 70-per-cent below the 10-year average. “GTA new home sales in July 2024 sank to another record monthly low as buyers remained unwilling to leave the sidelines,” stated Edward Jegg, research manager with Altus Group (BILD’s official source for new-home market data) in the association’s release.
Will anticipated interest-rate cuts from the Bank of Canada effectively move first-time buyers off the proverbial fence and inspire them to try out the 30-year option? Only time will tell.
Penelope Graham is the director of content at Ratehub.ca.
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