A key component of the housing-focused budget items was a program called First-Time Home Buyer Incentive. The $1.25 billion shared-equity mortgage scheme would see the Canada Mortgage and Housing Corporation (CMHC) provide first-time households earning less than $120,000 as much as 10 percent the value of a new home or 5 percent of an existing dwelling. For putting the money up front, CMHC would get an equivalent stake in the home.
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Further details are limited ? with more information expected later this year ? as BMO Senior Economist Robert Kavcic notes this morning with a series of questions, including when does interest kick in, if at all? And if a home sells at a loss, who covers the shortfall? What about if a family starts earning a whole lot more?
Nonetheless, in a news release, Canada?s Department of Finance estimates this plan alone will benefit 100,000 first-time buyers within three years. But more than one market commentator has highlighted how high home prices in Toronto and Vancouver limit the programs effectiveness in these cities.
In a post-budget TD report authored Chief Economist Beata Caranci and Senior Economist Brian DePratto, note how the federal incentive falls far short of the average home prices in some major markets.
The program caps mortgage amounts at four times the maximum household income threshold of $120,000, which works out to homes with price tags of about $500,000, the economists point out.
?Last month?s national average home price was near the cap ($460k), while average sale prices in Toronto and Vancouver were well above the cap ($765k and $925k, respectively),? they write.
Running similar calculations in a separate report, RBC notes that a 20 percent downpayment could stretch the maximum price of a home a participating household could purchase to $600,000.
?That may be enough to buy a small- to medium-size condo apartment in those markets (Toronto and Vancouver) but probably not a family-friendly home,? reads the RBC report.
Indeed, last month the average price of a detached home in Toronto was $980,914, according to the Toronto Real Estate Board.
Meantime in Vancouver, the benchmark price (the Vancouver board favours this measure, which is a quality-adjusted number looking at repeat sales of similar homes and excluding top-tier prices) was $1,443,100.
?Finally, we believe the incentive will be of limited help to millennials in Vancouver and Toronto, where affordability pressures are the most intense,? says RBC.
The federal government has also raised the cap on RRSP withdrawals for first home purchases to $35,000, up from the previous limit of $25,000.
TD economists suggest demand generated from the RRSP change and the First-Time Home Buyer Incentive could lift sales and prices 2 to 5 percent higher through 2020. ?In terms of the economy, these measures are not game-changers, but they will have a modest impact on markets,? write TD?s Caranci and DePratto.
RBC economists question whether the government moves will better position first-time Millennial homebuyers and then answer their own question: ?Perhaps not for long.?
?As we have argued previously, policy measures such as these that ultimately boost demand without really addressing housing-supply gaps in short order are poised to inflate prices,? they explain.