With last week’s budget, Ottawa reversed course somewhat on measures to cool the country’s overheated housing market. Having tightened borrowing rules to reduce the risk of people defaulting on their mortgages and help ease the unsustainable upward pressure on home prices, the government is looking to make borrowing easier for first-time buyers.
Over three years, the Canada Mortgage and Housing Corporation (CMHC) will make up to $1.25 billion available under the First-Time Home Buyer Incentive. The program will provide such buyers a shared equity mortgage equal to five per cent of the cost of a resale home or 10 per cent for new construction. Only households with annual incomes of less than $120,000 qualify, with the maximum mortgage value set at four times household income.
The maximum rate will cover the average sale price in much of the country, but not in the particularly troublesome markets of Toronto and Vancouver, where average prices are $765,000 and $925,000 respectively.
The budget also boosts the Home Buyers’ Plan (HBP) tax-free RRSP withdrawal limit to $35,000 from $25,000.
The government’s moves are something of a pre-election sop for millennials – the entire budget is an attempt at vote-buying, of course – and will be welcomed by groups that balked at the previous measures, particularly those who profit on the backs of homebuyers. They want to see the government back into pumping the real estate market that’s driven a good chunk of the economy while putting Canadians even deeper into debt, all the while excluding growing numbers of people with artificially high prices.
The bigger picture must be taken into account, particularly the on-again, off-again bursting of the housing bubble.
A series of reports, from agencies with no horse in the race, raises doubts about the sustainability of a decade-long upward trend that slowed only marginally during the worst of the 2008 recession, the same one that continues to plague housing prices in parts of the U.S.
There are glaring differences between the housing markets in the two countries. Where the U.S. wilted under foreclosures and soft sales, the Canadian market remained hot in many quarters. On average, homes are twice the cost here than in the U.S., though traditionally the two numbers have been at parity.
Even with some easing in Vancouver and Toronto, average home prices remain far out of reach of many residents.
None of that sounds sustainable. Some economists and market watchers are waiting on a correction. Still, there are plenty of us who see housing as a safe investment, unlike, for instance, the stock market, which remains volatile. Both markets are a gamble, however, and both were and continue to be heavily manipulated by the financial sector, the very industry responsible for the systemic corruption at the root of our economic woes.
Speculation, of course, is another word for gambling. When you buy stocks, you’re betting they’ll go up in price (or down, if you’re shorting). Other than securities, there are a host of speculative investments for those willing to take the risk. Speculation also extends to the housing market. This applies not only to people who buy homes to flip them, or farmland in the hope of a future subdivision, but to many who’ve entered the housing market in recent years.
Moves that counter risk and end the speculative aspect of real estate can only be a good thing. The real goal is housing people, after all, and the lower the price, the better.