Canada’s 30-Year Mortgages Seen Helping Small ‘Sliver’ of Market

Thomas Seal and Erik Hertzberg, Bloomberg News

The relaxation of Canada’s mortgage rules may increase the attainable purchase price for first-time buyers by roughly 6%.

, Bloomberg

(Bloomberg) -- Canada’s decision to allow first-time buyers to take out mortgages with 30-year amortization periods on new builds will only affect “a sliver” of the country’s highly priced housing market, according to analysts.

“It’s not a needle-mover; it’s not a game-changer,” Ryan Berlin, senior economist at Vancouver-based real estate firm Rennie, said in a phone interview. “The first-time home buyer segment of the market is really small, and then the presale — the new-home segment of the market — is also small.”

The relaxation of Canada’s mortgage rules — announced Thursday by Finance Minister Chrystia Freeland to ease the country’s housing affordability problems — may increase the attainable purchase price for first-time buyers by roughly 6%, according to estimates from Berlin and his colleagues. However, new homes are often relatively more expensive and are subject to a 5% goods and services tax, which would offset most of the policy’s benefit, he added.

Read More: Canada Opens Mortgage Market to 30-Year Loans for Homebuyers

Still, the policy stands to affect builders’ approach to new construction, Berlin said.

“Certain developers may see the biggest impact in a positive way,” he said. If they’re selling new homes geared toward first-time buyers, such as smaller or transit-oriented units, first-time buying “may be funneled into those types of projects.”

First-time buyers make up less than half of transactions, with their share falling in favor of investors and move-up buyers, while insured mortgages — the kind covered by the new policy — have fallen to about 15% of new activity, Bank of Montreal senior economist Robert Kavcic wrote in a note.

Buyer power could increase by about 8%, assuming a 5% mortgage rate with a fixed down payment, in the relevant “sliver” of the market, Kavcic added.

“This could shift some incremental activity towards new builds among first-time buyers — until prices adjust — but the overall market impact should be limited,” he said. “And that’s a good thing, as juicing demand is rarely the right prescription for a market already struggling with excess demand.”