There is a lot of information about housing affordability out there, and not all of it is accurate. We’ve compiled the most common myths and answered frequently asked questions.

Have a question or concern that’s not addressed here? Write it below and your questions or comments (and our answers) may get added to the list.

Myth: If house prices fall, it means affordability is improving.

The over 60 changes to mortgage rules since 2009 have slowed or lowered housing prices in many markets, but this has not improved affordability. This lowering of prices is from artificially suppressed demand – the result of locking out well-qualified first-time homebuyers. Houses are not more affordable if their price is lower because mortgage rules now declare people can’t buy them.

Affordability is made up of three factors: house prices, mortgage rules, and income. Truly addressing affordability is not as simple as cutting out a percentage of the market to reduce the number of prospective buyers and making prices (and homeowners’ equity) fall. When prices drop because tens of thousands of millennials have been locked out of the market due to mortgage rules, that’s not improved affordability – it’s decreased affordability. The result is market instability, pent up demand, lowered homeowner equity, faltering local economies, and a whole generation of young and new Canadians with their financial futures hampered. 

Myth: Changes to the stress test and mortgage amortizations will drive up housing prices

Purchasing a home is a good investment in Canada – homeowners and prospective buyers want their investment to appreciate at a reasonable rate over time. But that appreciation should be slow and steady to keep housing affordable so that when it’s time to sell, someone else can buy your home. That’s the balance we need.

Recent projections by CMHC suggest a return to 30-year insured mortgages for first-time buyers would only increase prices by 1% – 2.4% (the regular rate of inflation), while dramatically improving affordability and returning tens of thousands of well-qualified borrowers to the market. Similar results can be achieved with a well restructured stress test. One to two percent growth would be natural price appreciation, while tens of thousands of young Canadians would be able to responsibly enter homeownership without undue risk to themselves or Canada’s financial system.

Aren’t federal policies helping Canadians avoid excessive household debt? Wouldn’t changes increase borrowing (debt)?

CHBA recognizes that Canadians are carrying increasing consumer debt. However, mortgage debt is less precarious than other forms of debt (like car loans or cell phones), and is an investment, especially for younger first-time homebuyers.

Further, young Canadians manage debt very well and are very low risk. Canadians under 35 are at the lowest risk of falling into mortgage arrears: according to CHMC analysis of Equifax data, the delinquency rate for 25-34 year olds is 0.26%. (The average is 0.29% across all ages.) They also have their whole working lives ahead of them to pay down their mortgage, while their incomes increase over time.

The current blanket “stress test” does not recognize this fact, and current mortgage rules also fail to see the importance of homeownership as a key to individual financial security.

If too many people take on big mortgages, interest rates stay low, and house prices keep rising, aren’t we at risk of a housing crash?

While low interest rates were a factor in the U.S. 2008 Great Recession, they were not the only factor. Nor were house prices. The U.S. system was (and still is) very different than Canada’s. Canada’s financial system is ranked near the top globally. Canada has robust market fundamentals – including strong mortgage underwriting practices and stricter banking regulation – that would make it very difficult for the same thing to happen in our country. It is essential to balance fiscal prudence with access to homeownership for Canadians who value it.

I keep hearing that there are way more new condos than needed. How can you say we don’t have enough housing supply?

Empty condos and unsold units are the result of two things: a mismatch between what homebuyers want to live in and the real impact of the stress test settling in. Buyers are now struggling to close the financing on homes they agreed to purchase before the stress test requirements came into effect last year; well-qualified buyers, with income and a down payment, are suddenly finding they are no longer financially “good enough” to realize their dream of homeownership.

If people can’t buy a house, isn’t renting a good choice?

Renting may be the preferred choice for some people, and that’s okay. But 4 in 5 renters want to purchase their own home, and when they can’t we see a trickle-down effect. The stress test is preventing responsible and qualified homebuyers from entering the housing market, which clogs up the rental market. Over 80% of rental stock that becomes available each year comes from first-time homebuyers leaving the rental market. Right now, that is being stagnated, causing rental shortages and higher rent, and fewer units available for Canadians in housing need.

Want more info?

Write your questions/comments below and we may add it to the list above along with our answers. Please note that only respectful dialogue will be featured.

We’ve explored some topics in more detail in our blog, and will continue to add more.

4 comments

  1. Although some points presented here were good, there is a definate bias from the writer. Supply and demand.. its basic economics.. stricter lending rules brings down demand.. and ultimately lowers house prices. This market is easily 25% inflated over where it should be. The $500,000 basic 1970’s home should be $375,000, that would make the biggest change. Prices are high becasue of the gov’ts lax lending rules during the 90’s and 2000’s, allowing 0% down 40 year term mortgages. I saved for 7 years to get my 20% down payment and took a 25 yr term mortgage. We should have all mortgages capped at 25yrs and at least 10% down.. bringing down demand and house prices to a resonable level. Yes this will hurt for 5-10 years, but will be better for everyone long term.

    1. Thanks for your comments, Travis. Stricter lending rules artificially suppresses demand – it doesn’t mean fewer people want to buy homes, it means fewer people are able to buy homes. Allowing well-qualified first-time buyers – who are statistically the lowest risk group of buyers according to Equifax and yet who are inordinately affected by changes to mortgage rules – to have 30-year amortizations on insured mortgages makes sense. Young people are just starting their careers and their salaries are just beginning to grow. They are the financial future of Canada, and addressing the inequities in mortgage access that they currently face will deliver financial benefits to them, and to Canada as a whole.

    1. CHBA estimates that at current rates, Canada will be some 300,000 family-oriented housing units short over the next decade. We definitely agree that we need more of the right kind of housing, in the right places. Making more housing supply available will give people a place to live, help keep prices down for all homes, and free up rental properties as people move into their first homes.

Leave a Reply

Your email address will not be published. Required fields are marked *