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 we make it harder to buy houses now with mortgage rules, it will be better in the long run because house prices will fall and ultimately affordability will be improved.
Making it harder to buy a home (locking people out of homeownership) through mortgage changes can slow or lower housing prices, but it doesn’t improve affordability now or in the long run. This lowering of prices is from artificially suppressed demand – the result of locking out well-qualified first-time homebuyers. Locking people out of home ownership does not result in homes being more affordable if their price is lower because mortgage rules now declare people can’t buy them. And as we saw during the pandemic, that previously artificially suppressed demand was still very much present, and resulted in accelerating house prices when lower interest rates met with limited housing supply.
What we need is a balance.
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 people have been locked out of the market due to mortgage rules or skyrocketing home prices, 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.
What we need is a mortgage system that supports well qualified-first time buyers and enables them to get into the market with today’s realities. It is housing supply that is needed to slow house price acceleration; and reducing government fees and taxes would greatly help reduce prices too.
Myth: Changes to mortgage amortizations and the stress test will further 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.
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 0.20%. (The average is 0.25% across all ages, which has actually decreased from 0.29% pre-pandemic.) They also have their whole working lives ahead of them to pay down their mortgage, while their incomes increase over time.
Policies that help well qualified buyers enter the market and become homeowners should continue to be explored. We know 94% of Canadians want to be homeowners, and the benefits of homeownership are extensive. We need balanced policies that keep first-time buyers able to enter the market.
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. Firstly, it is important to stem accelerating price growth with more supply. If we can build enough homes to meet demand, we will avoid excessive price growth. But regarding interest rate, while low 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.
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 92% of renters hope to buy a home in the next five years, and if they can’t we will see a trickle-down effect. We need a mortgage system that better helps responsible and qualified homebuyers enter 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. This will be made worse as immigration starts again at full speed.
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We’ve explored some topics in more detail in our blog, and will continue to add more.
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.
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.
Families need 3 bedroom condos, why are the majority being built only two bedroom?
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.