(Toronto) The head of the Canadian housing agency believes that measures such as extending mortgage amortizations and changing the threshold for qualifying for an insured mortgage are not the answer to housing affordability problems in the country.
Even though homeowners have seen a rapid increase in their mortgage payments as interest rates have risen, Canada Mortgage and Housing Corporation (CMHC) President and CEO Romy Bowers doesn’t is not in favor of borrowers repaying their mortgages over longer periods.
“It makes credit more accessible,” she told The Canadian Press.
“It reduces the monthly payment, but it actually increases the cost to the owner over time. »
However, a borrower whose down payment is at least 20% of the purchase price can benefit from a maximum amortization period of 30 years.
Proponents of longer amortization periods argue that they give borrowers more flexibility and help them balance their monthly budgets. Critics counter that longer amortization translates to higher interest costs over the life of the mortgage, which means home equity accumulates more slowly.
“What worries me is that sometimes it seems like a quick fix,” Bowers said of the possibility of extending write-offs.
“If you only have 30-year amortizations, everyone’s mortgage payments will go down by $200 and they can actually afford the house, but if you’re in a market where supply is limited and it’s your solution, it won’t solve the problem in the long run,” she stressed.
“What we need to do is increase the supply to develop a more balanced market and have more housing at different prices, so that people do not have to spend so much money on mortgage debt. »
Ms Bowers’ view is based in part on what happened in the UK, where the government introduced a scheme that provided first-time home buyers in London with “generous” grants for of funds.
When the program was later evaluated, Bowers said, they found that starter home prices had risen by the exact amount of the government subsidy, essentially negating any affordability gains.
Likewise, she said, extending the amortization period “is not a winning formula, because it drives up real estate prices.”
The start of 2023 saw blistering demand in the housing market ease as borrowing costs rose, but Canadians then began to pull away from the housing market, pushing up again the costs.
The average price exceeded the $1 million threshold in the Greater Toronto Area and several parts of British Columbia.
“Surges in new listings across the country eased supply and demand conditions in the majority of markets last month, but not enough to tip the balance in favor of buyers,” the economist explained. Royal Bank deputy chief Robert Hogue in a note to investors last week.
“Actually, the sellers are still holding the strong hand at this point, which is why prices have been appreciating lately. »
Bowers, who took over as CMHC in April 2021, would like to see affordability improve. She says it will take multiple levels of government working together to quickly create more purpose-built rental housing, as well as other types of homes that meet buyer demands.
Many potential solutions have been mooted, but she maintains that procurement must be the star of the plan.
However, she monitors the state of mortgages, which have become more expensive as house prices, mortgage rates and interest rates have climbed in recent years.
There is also a limit on mortgage loan insurance, which is not available for homes costing more than $1 million.
CMHC’s insurance portfolio has little exposure to the Toronto and Vancouver markets, where house prices are the highest.
“If the role of the mortgage insurance system is to provide coverage across Canada, then is the $1 million cap a barrier? And what should be done? she asked.
“But I don’t see this change as a magical solution to the problem of housing affordability. »
