This past Monday I played in a memorial golf tournament with some good buddies.
The tournament was in honor of Antonio (Tony) Mancuso, who passed away last year.
Tony was very active in the Windsor soccer community, and it was great to see so many people from the soccer community show their support.
Years ago, I sat on a board with Tony for a local soccer organization.
We were co-treasurers.
I was CPA working in Public Accounting at the time, and Tony was a retired CAW worker who didn’t finish high school.
But you know what… when it came to the Treasurer role, I learned way more from Tony, than he did from me. In fact, I think I learned more from Tony than I did from any of my bosses at the accounting firm.
Tony understood money, understood people and most importantly was passionate about his responsibilities.
Those three things combined made him extremely effective at what he did.
And that was obvious on Monday when so many people showed up to show their support.
I was honored to be a part of it.
While on the gold course, something else happened…
Massive Mortgage/Housing news this past Monday.
And the crazy part about it is that it came completely out of left field.
Nobody saw it coming.
The Federal Government came out on Monday and announced two new policies, related to insured mortgages…
Policy #1
Expanding the eligibility for borrowers to utilize 30-year amortizations when buying a new build or acting as a first-time homebuyer, up from the typical 25-year amortization.
Policy #2:
Raising the price cap for insured mortgages from $1M to $1.5M.
Let’s start with item #1.
Earlier this year, the government already announced that they would increase the amortization period to 30 years for insured mortgages for first-time home buyers.
They’ve now expanded on this policy, to include eligibility for a 30-year amortization period, for ALL borrowers (not just first-time buyers), purchasing a new build.
Borrowers that put a down payment of 20% or more (i.e. uninsured borrowers), already had access to 30-year amortization mortgage products.
So, this new policy impacts a smaller group — those putting less than 20% down and buying a newly constructed home.
Item #2. This is the big one, in my opinion.
The government is now saying that they will insure a borrower when they purchase a home up to $1.5 million. This represents a $500,000 increase, as that limit is currently $1 million.
Why do I think this is such a big announcement?
Two reasons…
For starters, this announcement was made under the backdrop of helping first-time homebuyers get into the housing market.
In fact, they emphasized that these policies are intended to help people get into the housing market.
The way I interpret this is that not only are they acknowledging that in Canada the average price of a house has gone way up, but they are also admitting that housing prices are likely to continue to go up.
In fact, for the last several years, many in the real estate, construction and mortgage industries (i.e. those who are motivated by houses selling) have been lobbying for the limit to be increased to $1.25 Million.
And for a long time, this fell on deaf ears.
But much to everyone’s surprise, the Feds said “I’ll see your $1.25 Million, and raise it another $250,000… to $1.5 Million.
Ultimately, what this policy conveys is that housing prices will continue to increase and at some point, soon, they believe that the average price of a “starter home” in Canada, will be $1.5 million.
But don’t worry about it Mr./Ms. First-time homebuyer… the government is here to help… we will help you get a 30-year insured mortgage for that.
Reason #2:
What this also conveys, is that the government will not let real estate and construction fail.
It’s got the backs of those two industries…
There are too many parties at risk if real estate prices were to drop… including/especially the Big Banks.
Therefore, the Feds are ready and willing to implement DEMAND side stimulus measures to keep prices high…
Make no mistake about it… these major policy changes are demanding stimulus.
And if you increase demand of an already under-supplied good, the price of that good goes up!
This is actually a pretty clever political move by the government… especially as we get closer and closer to an election… start changing policy to benefit the banks, insurance companies and big developers, but make it seem as if you’re doing it to help first-time homebuyers… Genius!
Only time will tell who these policies will help, and how effective they will be, but my one real takeaway from all of this is that more than likely the price of real estate in Canada will continue to go higher.
And while policies are being put in place to help “afford” that high priced real estate, at some point things will get even further out of reach.
So, it’s a good time to own, and perhaps it’s still a good time to buy…
On our end, we’re still sorting through all of these policy changes, but feel free to reach out to with any questions… we’re here to help.
Until next time,
Vince
P.S. The US Feds just announced a rate cut of 50 bps. This likely opens the door to larger rate cuts here in Canada… stay tuned.
