Bank of Canada holds benchmark interest rate steady & updates 2022 economic outlook
Summary:
- Prime did not change today, Jan 26, and the Bank of Canada (BoC) clearly said they are planning on starting the needed rate increases at the next meeting in 6 weeks, on Wednesday March 2nd.
- The Market has “priced in” between 4 and 6 increases in 2022, each by .25%, and between 2 and 4 increases in 2023, each by .25%
- There may be fewer increases if inflation returns to the target of 2% from today’s 40 year high of about 5%.
- The USA is seeing record 7% inflation and Canada usually gets dragged along with the US numbers so that balances the possibility of fewer increases.
- Mortgage Strategy – secure a fully underwritten, pre-approval, with a 120- day rate hold, from a person, not an online “60-second-mortgage-app” as soon as you think you may be buying in the next 2 years.
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DETAILS:
This morning in its first scheduled policy decision of 2022, the Bank of Canada left its target overnight benchmark rate unchanged at what it describes as its “lower bound” of 0.25%. As a result, the Bank Rate stays at 0.5% and the knock-on effect is that borrowing costs for Canadians will remain low for the time being.
The Bank also updated its observations on the state of the economy, both in Canada and globally, leaving a strong impression that rates will rise this year.
More specifically, the Bank said that its Governing Council has decided to end its extraordinary commitment to hold its policy rate at the effective lower bound and that looking ahead, it expects “… interest rates will need to increase, with the timing and pace of those increases guided by the Bank’s commitment to achieving” its 2% inflation target.
These are the other highlights of today’s BoC announcement.
Canadian economy
- The economy entered 2022 with considerable momentum, and a broad set of measures are now indicating that economic slack is absorbed
- With strong employment growth, the labour market has tightened significantly with elevated job vacancies, strong hiring intentions, and a pick up in wage gains
- Elevated housing market activity continues to put upward pressure on house prices
- Omicron is “weighing on activity in the first quarter” and while its economic impact will depend on how quickly this wave passes, the impact is expected to be less severe than previous waves
- Economic growth is then expected to bounce back and remain robust over the Bank’s “projection horizon,” led by consumer spending on services, and supported by strength in exports and business investment
- After GDP growth of 4.5% in 2021, the Bank expects Canada’s economy to grow by 4% in 2022 and about 3.5% in 2023
Canadian inflation
- CPI inflation remains “well above” the Bank’s target range and core measures of inflation have edged up since October
- Persistent supply constraints are feeding through to a broader range of goods prices and, combined with higher food and energy prices, are expected to keep CPI inflation close to 5% in the first half of 2022
- As supply shortages diminish, inflation is expected to decline “reasonably quickly” to about 3% by the end of 2022 and then “gradually ease” towards the Bank’s target over the projection period
- Near-term inflation expectations have moved up, but longer-run expectations remain anchored on the 2% target
- The Bank will use its monetary policy tools to ensure that higher near-term inflation expectations do not become embedded in ongoing inflation
Global economy
- The recovery is strong but uneven with the US economy “growing robustly” while growth in some other regions appears more moderate, especially in China due to current weakness in its property sector
- Strong global demand for goods combined with supply bottlenecks that hinder production and transportation are pushing up inflation in most regions
- Oil prices have rebounded to well above pre-pandemic levels following a decline at the onset of the Omicron variant of COVID-19
- Financial conditions remain broadly accommodative but have tightened with growing expectations that monetary policy will normalize sooner than was anticipated, and with rising geopolitical tensions
- Overall, the Bank projects global GDP growth to moderate from 6.75% in 2021 to about 3.5% in 2022 and 2023
January Monetary Policy Report
The key messages found in the BoC’s Monetary Policy Report published today were consistent with the highlights noted above:
- A wide range of measures and indicators suggest that economic slack is now absorbed and estimates of the output gap are consistent with this evidence
- Public health measures and widespread worker absences related to the Omicron variant are slowing economic activity in the first quarter of 2022, but the economic impact is expected to be less severe than previous waves
- The impacts from global and domestic supply disruptions are currently exerting upward pressure on prices
- Inflationary pressures from strong demand, supply shortages and high energy prices should subside during the year
- Over the medium term, increased productivity is expected to boost supply growth, and demand growth is projected to moderate with inflation expected to decline gradually through 2023 and 2024 to close to 2%
- The Bank views the risks around this inflation outlook as roughly balanced, however, with inflation above the top of the Bank’s inflation-control range and expected to stay there for some time, the upside risks are of greater concern
Looking ahead
The Bank intends to keep its holdings of Government of Canada bonds on its balance sheet roughly constant “at least until” it begins to raise its policy interest rate. At that time, the BoC’s Governing Council will consider exiting what it calls its “reinvestment phase” and reducing the size of its balance sheet. It will do so by allowing the roll-off of maturing Government of Canada bonds.
While the Bank acknowledges that COVID-19 continues to affect economic activity unevenly across sectors, the Governing Council believes that overall slack in the economy is now absorbed, “thus satisfying the condition outlined in the Bank’s forward guidance on its policy interest rate” and setting the stage for increases in 2022.
Mortgage Rate Holds are the theme for buyers in 2022
Mortgage Mark Herman, your friendly Calgary Alberta mortgage broker & New Buyer Specialist.
Nov 2021; Mortgage Rates & Inflation Report
This just in data is when mortgage interest rates are expected to rise.
DATA JUST IN
Canada’s latest employment and inflation numbers have triggered new expectations about the next steps by the Bank of Canada and the arrival of interest rate increases.
BoC Governor Tiff Macklem continues to offer soothing words about inflation, which is current running at 4.1%. That is an 18 year high and more than double the central bank’s 2.0% target.
Macklem has repeatedly said high inflation is temporary; the result of low prices during the pandemic lock-downs, and supply chain problems that have cropped-up as the economy reopens.
Macklem points out that a key factor in long term inflation – wage growth – has not materialized. That is despite Canada returning to pre-pandemic employment levels with the addition of 157,000 jobs in September. It should be noted that the growth of Canada’s labour force during the pandemic means the country is still 276,000 jobs short of full employment. Last week however, Macklem did concede that this temporary inflation may linger for longer than initially expected.
Several prominent economists have weighed-in. Benjamin Tal cautions that inflation is a lagging economic indicator. He says the risks for long-term inflation are present and the Bank of Canada would be better to start raising rates earlier to help mitigate those risks. Doug Porter says there is a growing chance rate increases will come earlier. He expects they will happen quarterly rather than every six months. And, Derek Holt would like to see a rate hike by the end of the year, given that emergency levels of stimulus are in place while inflation is well above target.
Look for mortgage interest rates to start going up close to the end of 2021 and continue until they are back close to PRE-Covid Rates of about 3.35% for the 5-year fixed.
Mortgage Mark Herman, best Calgary mortgage broker for the masses!
EXPLAINER: Why & Where Inflation and Canadian Mortgage Interest Rates
Best answer I have seen yet is below … it still makes the 5-year fixed the better option right now (for most people)Mortgage Mark Herman, Top Calgary Mortgage Broker
The latest significant news was good, but modest. Canada’s unemployment rate dipped to 7.5% with the creation of 94,000 jobs in July. Most of those are full-time and in the private sector.
Employment levels are linked to inflation, which is a key factor watched by the Bank of Canada in setting interest rate policy which, in turn, can affect mortgage rates.
As the labour market tightens up, employers tend to offer higher wages to attract workers. That increases the cost of producing goods and services, driving inflation. As well, as more people get work and earn more money demand for goods and services increases. If that demand outpaces supply, inflation can also result.
Canada finds itself in this position now. Inflation is running high chiefly because of supply constraints caused by the pandemic. At the same time, more and more people are heading back to work.
That has some analysts forecasting the Bank of Canada will be raising rates to calm inflation. The Bank, however, has been saying otherwise.
It is also useful to watch what is happening in the United States. The two economies are tightly linked and actions in the U.S. can offer useful clues about what will happen here.
In its latest assessment of the American economy the U.S. Federal Reserve continued to down play inflation – which is running high there as well – as “transitory”. The Fed continues to look to the second half of 2023 as the most likely time for any possible rate hikes. While the Bank of Canada has said it expects rates could start rising as much as a year sooner than that, it would be unusual for the BoC to move before the Fed.
Mortgage Tip: Where are Canadian Mortgage Rates Going in 2021
SUMMARY:
There is LOTS of room for rates to go up, and very little for rates to go down or even hold steady.
Fixed mortgage rates are predicted to rise by 40% and go back to Pre-Covid rates or higher:
- 2.9% (from 2.09% now) for less than 20% down; CMHC insured
- 3.10% (from 2.24% now) for more than 20% down; conventional / not insured.
Prime – what variable rates are based on:
- The Bank of Canada has moved their target for Prime increase from 2023 to 2022.
- The US Fed has moved their target for Prime increase from 2024 to 2023, and the market expects that to move to 2022 as well.
- Prime is 2.45% today, it was 3.95% just before Covid (Feb, 2020) and will be trending back that way soon.
- Prime – 1% is the rates for today. 2.45% – 1% = 1.45% which is a great rate but how soon and how much will it move?
This article is awesome, and clear on what the changes mean. The summary above is all you need but you love this data, then read on …
Canadian Mortgage Rates Forecast To Rise Over 40%, Posted Rate Can Hit 7%
Canadian inflation is marching higher, and so are the expectations for mortgage rates. One bank sees the 5-year posted rate having more room to rise than fall in the future.
The institution has forecast the posted 5-year fixed-rate mortgage can rise up to 40% by 2024.
While the posted rate is rarely the rate paid by mortgage borrowers, it does impact a number of things. More importantly, it reflects an environment where credit is tightening.
The Posted Mortgage Rate Vs What You Really Pay
The posted mortgage rate is an unusually high mortgage rate that’s kind of like the sticker price of a car. It’s unreasonably high, few people will use it, and it’s mostly to help buyers feel like they’re getting a deal. The spread between the posted rate and a lender’s best available rate is usually between 220 to 250 bps. This means the rate borrows often pay is a full 2.2 to 2.5 percentage points lower than the posted rate. That doesn’t mean the posted rate is useless though.
The two biggest impacts it has are on payment penalties and the stress test. If you were to break your fixed-rate mortgage early, for say refinancing at a lower rate, you have to pay a penalty. That penalty is usually 3-months of interest, or the interest rate differential (IRD). The IRD is the difference between your rate and the posted rate closest to your remaining term. Then subtract any discount you received at origination. It’s pretty much what banks use to make sure you pay a big ole’ penalty for changing plans.
The stress test rate is also likely to be influenced by the posted rate, but maybe not directly. Originally the Bank of Canada benchmark rate was used to determine the stress test rate. This was based on the posted rate at various banks. OSFI, the bank regulator, found it wasn’t very responsive to risk though. Rather than rely on the benchmark, they established a rate floor — the minimum rate that can be used. The criteria for how the floor can evolve can change a lot from now until 2024. However, it’s unlikely the stress test rate would ever fall below the posted rate. The stress test rate is currently around 50bps higher than the posted rate.
Canadian 5-Year Fixed-Rate Mortgages Have More Upside Risk Than Downside
There’s uncertainty, but Canada’s faster than expected recovery shows more upside than down. The five-year posted fixed rate is 4.74% currently. In a downside scenario, they see this falling to 4.40% by the fourth quarter of 2021. The upside scenario sees it rising up to 5.25% in the same quarter. Higher inflation expectations are also contributing to a stronger upside scenario.
Canadian Posted 5-Year Fixed Rate Forecast
By next year, the posted 5-year fixed rate is forecast for an even higher maximum — breaching the 6 point mark. Rates are forecast to have a downside of 4.6% in 2022, and an upside of 6.20%. In 2023, the range rises to 4.70% to 6.60% for the full year. In 2023, it gets a little more uncertain with the range widening from 4.55% to 6.95%. While the latter range is wider, it has a lot more upside than downside. The probability of it falling would likely require a substantial economic slowdown.
Since a number of factors go into a forecast, the longer the date, the more uncertainty it faces. Economic conditions would have to worsen and inflation drop for rates to fall. For rates to rise, Canada would have to continue a strong recovery, and/or see higher levels of inflation. Canada is so dependent on housing now, we likely have many people cheering on a crash to keep rates low.
Link to the full article is here: https://betterdwelling.com/canadian-mortgage-rates-forecast-to-rise-over-40-posted-rate-can-hit-7-desjardins/
Inflation & Mortgage Interest Rates
- 5 Year fixed are going up and never getting back down to where they are now.
- Variables are also great – right now they are Prime – 1% or 2.45% – 1% = 1.45%, and as below, should stay there until 2023! Almost 20 more months!
Both of these are awesome options right now.Mortgage Mark Herman, Top Calgary Alberta mortgage broker for 1st time home buyers
Bond traders believe inflation is going to be rising over the coming months and have been demanding increased bond yields. That has led to increasing interest rates for bonds and, consequently, increasing rates for the fixed-rate mortgages that are funded by those bonds.
The traders say the COVID-19 vaccine rollout and plans for vast infrastructure spending – particularly in the U.S. – are boosting expectations of a broad recovery and an increase in inflation. Better than expected GDP growth in Canada and shrinking unemployment in the U.S. would tend to support those expectations.
This, however, puts the traders at odds with the central banks in both Canada and the United States.
The Bank of Canada and the U.S. Federal Reserve also expect inflation will climb as the pandemic fades and the economy reopens. There is a pent-up demand for goods and services, after all. The central banks see that as transitory, though, and appear to be looking past it. The U.S. Fed has gone so far as to alter its inflation target from 2% to an average of 2%, over time, thereby rolling any post-pandemic spikes into the bigger, longer-term calculations.
The Bank of Canada and the Fed have committed to keeping interest rates low, probably through 2023. Both say inflation will have to be sustained before interest rate moves are made to contain it. The integrated nature of the Canadian and American economies means it is unlikely the BoC will move on interest rates before the U.S. Fed.
$37,000 Payout Penalty at CIBC
The latest in giant payout penalties, this one was $47,291.
Here is a person – one of my ACTUAL ALMOST-Customers who had to swallow a surprise at TD for $35,000. (We tried 3 times to get him to not take that mortgage.)
To make this even more mind blowing, at a 39% tax rate that is $65,700 the person has to pay … about the same as 1-year of income at a full time job, without tax taken off.
- Would you work for 1 year to give it all to your bank if you had to sell or move or close down the mortgage for any reason?
- Would you sign an agreement like that?
- Have you already signed an agreement like this without knowing you have?
EASY to AVOID …
You don’t need to add in this risk to your home purchase. It is easy to get around by taking a mortgage from a major Broker Bank.
Broker banks calculate the payouts the “old way” which was way more fair to you, the buyer. Click here for the posts about payout penalties.
Broker banks also have better Terms & Conditions than the Big-6.
Link to the article: https://toronto.ctvnews.ca/american-who-sold-home-in-toronto-shocked-by-47-000-mortgage-penalty-1.5212884
“Broker Banks have better T&C than all of the Big-6. Call a mortgage broker first.”
Mortgage Mark Herman, Top Rated Calgary Mortgage Broker
CIBC mortgage penalties: “UNFAIR”
We always focus on the Terms and Conditions of the mortgage. Most people have no idea what the bank is talking about when they sign the mortgage. We DO as we do this every day.
Here is a link from a Canadian Law website about a CLASS ACTION LAW SUIT against CIBC for calculating their payout penalties incorrectly: https://canliiconnects.org/en/commentaries/66074
My favorite part of the article is here:
“difficulty of enforcing fairness to consumers … there is a serious imbalance of bargaining power between the oligopolistic banks and individual borrowers. Legislative action to provide better consumer protection would be desirable.”
MORE
And here is a link to a guy that was almost our customer but stayed at his bank because they matched our broker rate. And now he is paying a $35,000.00 payout penalty because of it.
https://wordpress.com/block-editor/post/blog.markherman.ca/1447
10 Pro Tips to Keep Your Credit Score as High as Possible
Inside data on maxing your credit score – 10 tips
It can be tough to optimize your credit score when you don’t even know what it is? The answer is by focusing more on your overall “credit hygiene” rather than on any one particular score.
Dental hygiene is preventative maintenance to ensure your teeth and gums are the best they can be at all times. Having a similar routine for your personal credit history can be equally important to avoid problems when you least need them—like when buying or refinancing a home.
If you are always employing best practices, then you are optimizing your credit score and your overall credit profile, regardless of who is checking, when they are checking and what is being counted and reported.
Unfortunately, more credit in the wrong hands can lead to abuse. Some people rely on credit to supplement their income and end up in an untenable situation. These credit hygiene tips are intended for people who are responsible with credit.
1. Never Go Over Limits – Leave Some Room
When you have a credit card or line of credit hovering around its limit, you are at risk of going over, which is not a good thing for your credit score. And it might happen innocently—you started out under the limit, but with interest charges and possible over-limit penalties, you are now over limit and lose about 100 points.
Even when you deploy a balance transfer promotion or some form of interest-free period, you should leave room at the top.
It’s like when ordering a coffee, leave room at the top for the milk—even if you take it black, avoid spillages.
2. Accept All Offers of Increased Limits
You should usually welcome credit limit increases. You look healthier and stronger to the casual reader, because your limits have some heft to them. And perforce, you instantly reduce your percentage utilization of credit with an increased limit. This often results in a higher credit score.
Percentage utilization has a 30% weighting on your personal credit score.
3. Spread Around Your Balances
When maximizing your personal credit score, you should look at your utilization of available credit for each individual credit facility. If your goal is to maximize your score at all times, but you do carry credit balances, try to spread it around, rather than cluster it all on one card. One way this can arise is when you use balance transfer promotions to reduce interest expenses. You’ll have to evaluate the trade-offs of each approach.
4. Exercise All Cards and Lines of Credit
We tend to favor one particular credit card (maybe we like their rewards program) and we might neglect our other cards. If you are trying to maximize your credit score, it is good to use all available credit fairly regularly, even if it’s just for a brief moment every few months.
These trade lines can get stale and they are not pulling their full weight. Update the DLA (date of last activity) with a modest transaction and then pay it online immediately.
5. If in Doubt, Do NOT Close a Credit Card
It will rarely be correct to close older, unused credit facilities since they are contributing “score juice.” If you want to close the card to avoid an annual fee, just ask the card issuer to downgrade your card to a free card. You will retain your valuable history, but avoid annual fees (and the spectre of forgetting to pay the fee).
PS: My Avion card just charged me $120 annual fee and I am not using it. I called and they reversed the fee for me! and the card is still open.
Equifax Canada states your history can have a 15% weighting on your personal credit score.
6. Use It or Lose It
If you never borrow money, or you have a solitary credit card in your wallet and you never actually use it, eventually you will have nothing generating a credit score for you. And you may end up with no score at all. And that can really cramp your style when you need a mortgage.
You want at least 2 things reporting to your bureau. 2 credit cards are best so if one oes sideways, you still have one running.
7. Pay Your Active Credit Cards At Least Twice Monthly – The Statement Date Strategy
I keep track of the statement cycle of my oft-used cards, and I pay the balance in full several days BEFORE the next statement is issued. The card issuer typically reports my statement date balance to the credit bureaus – so I always want that balance to be small, and that way my utilization ratios are really good.
And within a week or so of the statement being issued, I go back in and pay the statement balance in full. This ensures I never have interest charges on my core credit card usage, since the balance is always brought to zero before the due date.
The smaller the limits on your credit cards, the more dramatic the impact of the statement date strategy.
8. Pay Disputed Items – Then Argue Your Position After the Fact
You may know someone who was offended by charges they were certain did not belong on their credit card statement. They refused to pay and preferred to wait out the investigation process. Unfortunately, by doing that they run the risk of interest charges and late payments.
My own experience has always been the card issuers do the right thing when fraud or outright billing errors are at hand. So, I pay and wait for the credit to come back to my account when the investigation is complete.
NOTE – if the fraudulent charges are very large and quite serious, this is a different matter altogether and you should strategize the best approach with the authorities and management at the card issuer.
9. Scour & Clean All Reporting Errors
There might be some incorrect information in your personal credit history that is needlessly dragging down your score. Those are easy and necessary fixes. And the impact on the personal credit score can be profound. There are many types of errors, but two examples are:
- You have two or more personal profiles with the credit bureau, so your information is scattered and diffused. Combining it all into one credit report could well increase your score and strengthen your look. (This often happens to people whose name is hard to spell, or who have legally changed their name.)
- You completed a consumer proposal and all the debts included in the proposal should be reporting zero balances and should NOT be “R9s.”
Each agency provides a mechanism on its website for reporting errors. Mortgage brokers can fast-track an investigation with Equifax Canada for their clients. What might take a consumer two months we can often get done in a few days.
10. The Takeaway
The credit reporting agencies may generate a different score for credit card issuers, car dealerships or mortgage lenders, and the score they provide the consumer upon request is typically none of these. Therefore, you should be more concerned with ensuring you are always using best practices that will score well, regardless of who is doing the measuring.
The credit hygiene strategy ensures your credit history is a weapon you can wield with confidence, and that whatever method is generating your credit score, it will always be optimized and at its maximum potential.
“Always be working on your credit,” Mark Herman, best Calgary mortgage broker.
Mark Herman, best Calgary mortgage broker.
The Virus & Deferring: Another reason not to have your mortgage at your bank
Another reason not to have your mortgage at your main bank…
Many home owners have all their banking in one place for convenience but this is another “trap.” If everything is at your favorite bank, they can see:
- from your pay deposits if you are still working, or are receiving EI payments.
- what your debts and minimum payments are,
- your savings & checking balances, what your Line-of-credit is, and your credit score.
- they know the value of your home and the mortgage amount.
With all of this data on hand, the bank can decline your deferral and suggest that you use more funds from savings or line-of-credit to make the payments.
Mortgage Mark Herman, Top Calgary Mortgage Broker
Someone who has lost their job, or has reduced pay, due to the virus, is not going to react well to having their bank tell them to continue to make payments from savings or LOCs.
The Deferral Trap
If you have the ability to not defer and can continue to make the payments it will keep you out of the “Deferral Trap.” The “Trap” is when all the payments that were deferred, and the interest not yet paid, needs to be repaid or the lender could renew you at any rate they want; like posted rates. The only way you could change banks and/or still get a competitive rate would be to catch up all the owed funds.
Up to the Banks to allow you to defer … or not.
The mortgage insurers are leaving it to the lenders to decide if they will defer payments or not and the banks have not published any guidelines on how they are going to deal with this. Reviews so far range from, “super-easy, no questions asked, deferred for 6 months” to the other end of the spectrum with “your mortgage is too new” or if you have not been laid off, have not tested positive for Covid-19, or your credit is not good enough, or they want to redo the entire mortgage application, then it is their choice to allow the deferral. The way around this would be to contact your mortgage insurer directly to see if you can work through them if your bank is not cooperating.
Completed 2% of all FTHBI mortgages in YYC
Are you looking for a Mortgage Broker who specializes in the FTHBI in Calgary? That would be us!
We have completed 6 of these deals in 2019. There was as total of 260. So that puts us at completing 2.5% of the entire Calgary market for this program. Interesting!
Obviously, we love this program for these 2 reasons:
- You save between $100 and $200 per month on the mortgage payments. For sure. From Day 1.
- The point of the program is to lower your mortgage payments. When the government puts 5% down for you, it lowers the total balance outstanding and this lowers the payments.
- You save about $4000 in the CMHC fees.
- You put down 5%, and the government matches 5% on existing homes. That means your CMHC fee is based on 10% down and not 5% down, and you save that from Day 1 as well.
The down side
The down side is this is registered as an interest free loan from the government. You still pay them back 5% of the sale price when you sell. That is 5% of whatever the sale price is so it could be more or less, but it is still 5%.
“The down side is not a big deal!
Guaranteed lower mortgage payments and lower CMHC fee! This is a win!”
Mortgage Mark Herman, Top Calgary Mortgage Broker near me.
FREE RESEARCH Data on the First Time Home Buyer Incentive from Mortgage Mark Herman.
- Call us for all the data you need on this program.
- We have it all and can explain it to you -it is a long, boring read.
Here is the link to the full article, pasted below https://www.canadianmortgagetrends.com/2020/02/cmhcs-first-time-home-buyer-incentive-off-slow-start/
Four months after its official launh, CMHC’s First-Time Home Buyer Incentive had funded just 4% of its three-year goal, according to new data provided by the agency.
From the time the down payment assistance program launched on Sept. 2 to Dec. 9, CMHC received just 3,252 applications from across Canada, 2,730 of which were approved. That translated into total funding of $51.3 million—well off pace of the agency’s three-year target of $1.25 billion.
Under the program, the government will provide first-time buyers with an interest-free down payment loan of up to 5% for resale purchases, and 10% if the property is a new build. The CMHC then participates in any rise or fall in value of the home, and the loan must be repaid either when the house is sold or within 25 years.
Interest in the program was highest in Quebec, where 1,300 applications were received. Comparatively, just 436 Ontarians applied, according to statistics that were tabled in Parliament last week.
Here’s a look at the breakdown of applications from some of the major housing markets across Canada:
- Greater Toronto Area: 148
- Vancouver: 45
- Edmonton: 447
- Calgary: 260
- Winnipeg: 144
- Montreal 654
- Halifax: 64
- New Brunswick: 60
- PEI: 12
CMHC head Evan Siddall defended the results via Twitter on Friday:
“In addition to CMHC’s challenges in estimating demand for the FTHBI, uneven lender support is a complicating factor,” he tweeted on Friday. “It may also be evidence that there is less unsatisfied FTHBI demand due to the stress test than people claim. People can always buy less expensive homes.
Why is the FTHBI Unpopular?
Since the initiative was first announced in the Liberals’ spring budget, many in the industry have criticized it for being overly complicated and promising negligible benefits.
One of the biggest restrictions of the program is that it’s currently limited to purchases of up to $565,000. In markets like Toronto and Vancouver, buyers can be hard-pressed to find available properties under that threshold. According to recent data from the Toronto Real Estate Board, the average sale price in December was $837,788.
Many buyers have also expressed unease at the thought of giving up equity in their home, particularly with prices rising rapidly in many markets across the country.
While Prime Minister Justin Trudeau promised tweaks to the FTHBI during last year’s federal election, no additional updates have since been provided. The proposed changes would increase the maximum purchase price eligible under the program to $789,000 for buyers in Toronto, Vancouver and Victoria.
It remains to be seen whether the FTHBI’s slow start is a harbinger of future demand over the coming years, or whether first-time buyers will grow more receptive to sharing a chunk of their home equity with the government.