An economist says the federal government’s latest effort to help homebuyers will likely rejuvenate demand, but it needs to be matched by policy action to increase the supply of housing too.
In a report released Tuesday, CIBC Capital Markets deputy chief economist Benjamin Tal called Ottawa’s measures to expand the availability of mortgage insurance a “significant move.”
The government has proposed to increase the price cap on insured mortgages from $1 million to $1.5 million and to extend eligibility for 30-year mortgage amortizations to first-time buyers and new build buyers. The changes are set to take effect mid-December.
“From the past, we know that home buyers are very responsive to such policy changes. And this time will not be different, particularly in conjunction with easing mortgage rates,” the report said.
Currently, the housing market is divided between the detached (low-rise) segment, which is still seeing “a reasonable level of activity despite high interest rates,” and the condo segment that is “basically frozen largely owing to the fact that investors are basically out of the market,” the report noted.
Against this backdrop, “there is little doubt the current change to regulations will speed up the recovery process of the housing market that was ignited by lower and falling interest rates,” the report said. But it also stressed the need for demand to be accompanied by action to support increased housing supply.
“The core issue is the lack of supply available to respond to rapidly increasing population,” the report said. “The additions to demand from these mortgage changes will make it even more imperative to deliver on policies aimed at inducing more homebuilding.”
In the condo market, there’s currently excess supply, but with little new construction, the expected increase in demand will soon absorb the excess, the report suggested. “At that point, the supply that is supposed to be built now will not be available a couple of years from now,” it added.
The report concluded that in the short term, the level of activity in the Canadian housing market “is likely to continue to soften,” but in the long term, greater action is required.
“[W]hen the fog clears, it will become evident that the long-term trajectory of the market will show even tighter conditions. We’ll need all levels of government to pull in the same direction to allow supply to catch up to where demand is headed,” the report said.