Policy changes could provide big benefits for Toronto home buyers—but will they be enough to bring more investors to the market?
No doubt about it, the last couple of years have been unusual ones for the city’s real estate market. A lot has changed since prices hit their peak in 2017. Now, halfway through 2019, it feels as though we may be on the cusp of a transition. Buyer confidence has increased as price growth has stabilized—and while we haven’t seen a large uptick in market activity, that could change soon.
From more attractive interest rates to recent talk of longer mortgage terms, it may be that buying conditions are about to become very favourable. But will these developments make home hunters less hesitant—and what might they mean for investors? Here’s my take…
Interest rates dropping
In a move that will have an impact on real estate markets across the country, the Bank of Canada (BOC) recently announced that it won’t be raising interest rates again until the end of next year. Currently, they’re holding steady at 1.75 per cent.
This is a departure for the BOC, which has dropped its tightening bias in order to help the economy rebound. Not only is the central bank committed to not raising rates, but it’s expected to make cuts in the near-future. Two-thirds of forecasters polled predict that they will either be lower or unchanged by the end of 2020.
Of course, when BOC rates drop, so too do those offered by lenders. What follows is often an intense wave of interest from home buyers, which can provide a boost to the housing market. There are a number of factors that will impact whether or not this happens—and some of them relate to recent and future federal policy changes.
Changes on the horizon
It’s not just interest rates that could make the difference for would-be buyers. In its recent budget, the federal government announced some policy decisions that could help many Canadians enter the housing market.
First off, the budget ups the amount that first-time buyers could borrow from their RRSPs to purchase a home. That number has moved from $25,000 to $35,000. It also includes a program known as the First Time Home Buyer Incentive, which would work much like an interest-free loan for those who qualify.
Unfortunately, critics say the plan doesn’t go far enough (due to its restrictions, it may not do much to increase purchasing power in a market like Toronto). That said, it’s certainly a step in the right direction.
Even more encouraging is recent talk of extending amortization periods to 30 years. Proponents of bringing back longer-term insured mortgages include the Canadian Home Builders’ Association (CHBA) and BOC Governor Stephen Poloz. The CHBA says the government has recently shown clear interest in the idea, so a return to 30-year mortgages could be in the cards.
The effectiveness of the mortgage stress test has also been called into question. While it remains in place for the time being, organizations like the Toronto Real Estate Board (TREB) have called for it to be reviewed. Federal Conservative leader Andrew Scheer has stated that his party would do just that if elected in October. In particular, he’s committed to removing the provision that forces buyers who have already passed the stress test to do so again if they decide to switch lenders.
The impact on buyers
What does all of this mean if you’re thinking of buying a home—or an investment property—in Toronto? Put simply, purchasing conditions are becoming a lot more encouraging. While 30-year amortization periods and the removal of the OFSI stress test are just theoretical for now, lower interest rates will make mortgages more affordable for potential buyers. That’s worth keeping in mind, whether you’ve always dreamed of being a homeowner, or you want to invest in a condo and maximize your return.
In general, lower interest rates (along with other possible changes under discussion), have the potential to bring more Millennials and new Canadians to the market. That doesn’t mean we’ll be seeing the same sky-high demand (and sale prices) we did in 2017. Chances are, buyers will be a little bit more cautious in the years ahead.
Of course, it always makes sense to ensure that your purchase is well-thought-out. If you’re thinking about buying a condo (to call home, rent out, or sell down the line for a tidy profit), your agent can help you seize new opportunities while minimizing your risk.
Ready to buy a condo? I can answer all of your questions about the process—and help you find the perfect property. Call or text me at 416-500-5360, or send me an email at firstname.lastname@example.org and ask away!