Frigid February at fault for falling figures

Before getting to this month’s look at the most recent Calgary housing-start numbers from Canada Mortgage and Housing Corporation (CMHC), let’s first address the elephant in the room – the federal government’s 2019 budget and, specifically, some of the measures aimed at stimulating new homeownership.

On the surface, the federal Liberals’ intentions seem honourable. There’s a definite issue with an affordability gap preventing many would-be homeowners from realizing their dreams. It’s a problem that needs addressing, they’re addressing it – and that’s a good thing.

In a recent CMHC survey, price (affordability) was the most important factor considered when buying a home. The survey found the vast majority (85 per cent) of first-time buyers spent the most they could afford on their home, compared to 68 per cent of repeat buyers. This indicates that first-time buyers, including Millennials, may be stretching themselves financially to purchase their home. Indeed, a full 49 per cent of homebuyers put less than 20 per cent for a down payment.

The new program, known as the First Time Home Buyer Incentive, would see the feds put $1.25 billion over three years into a plan that would mean the CMHC would contribute up to 10 per cent of the purchase price of a new home in a type of “shared equity mortgage.”

Applicants would have to prove an annual household income of less than $120,000 and approvals are capped at four times that amount. Buyers would still have to come up with a minimum of five per cent down, the requirement for an insured mortgage with CMHC.

This is essentially an interest-free loan, bringing down the size of the homeowner’s mortgage — but comes with a bill to be paid later on down the line. And that’s where things get a little murky. The budget is unclear on how much buyers would actually owe; is it the same dollar amount the CMHC provided up front? Or does the amount due increase/decrease based on how much the house has gone up or down in value?

Exact details of how the program works won’t be announced until fall, but the government is speculating the plan could create as many as 100,000 new homeowners over the next three years.

Local experts are willing to give the government some props for effort, but say that it’s far too early to try to predict the outcome of the program and that further steps are needed to make homeownership more attainable for more people and breathe new life into the home building industry.

“The incentive is a good first step towards addressing housing affordability,” says Brian Hahn, CEO of BILD Calgary. “Combined with adjustments to the mortgage stress test, it’s plausible we could see improvement in our industry.

“A key positive of a shared equity mortgage would be reducing the impact of the federal stress test in markets it wasn’t needed, such as the Calgary Region. BILD maintains the abolition of the mortgage eligibility rules through OSFI would be preferable, as this doesn’t isolate the benefit for any market segment.”

Over at the Alberta Mortgage Brokers Association (AMBA), executive director Amanda Roy says her group and the larger Mortgage Professionals Canada have been lobbying for the past two years for relaxations to the stress test, along with several other recommendations meant to help both homebuyers and builders, such as boosting the maximum amortization period of a mortgage from the current 25 years to 30 years.

As far as the budget goes, Roy agrees it’s too early to guess the outcome of the government’s plan. “It isn’t what the mortgage industry community was hoping for,” she says, “but they did listen to our concerns regarding housing affordability and first-time homebuyers and try to address it in their own way.” And that’s a start.

In the meantime, here in Calgary, March housing starts were down compared to both last month and last March – a double downer, if you will. Starts were tracking along quite nicely the first couple of months of the year, trending above 2018 totals until March, which was down 37 per cent from March 2018. The decrease was enough to set the first quarter totals for this year behind last year’s year-to-date pace. Row homes, or townhomes, are the lone standout as being up both in March and year-to-year.

So, why the apparent slowdown in March? Well, one theory is the weather. If March starts are reflective of January and February sales, then it’s really no surprise the market wasn’t red hot as winter was taking a huge bite out of us here in Alberta – especially in February, one of the coldest ever – keeping folks indoors.

And, of course, there’s still that whole ‘economy thing’ going on as well as the recent provincial election won by the United Conservative Party.

Related reading

Housing markets to watch in 2019