The Canadian government’s announcement that it is easing mortgage lending terms will have detrimental consequences for Canada’s real estate sector and may even make near-term rate cuts by the Bank of Canada less likely.
· HBP participants between January 21st 2022 and December 31st 2025 are now allowed an extra three years to repay the amount to their RRSP for a total of five years. · Added housing demand probably lessens prospects for rate cuts by the Bank of Canada and pushes them out. It would be unreasonable to throw rate cuts onto the housing market especially after Ottawa just threw jet fuel onto the market.
· The peak effects of these changes are designed to pump next Spring’s housing market in an election year more so than this Spring’s market. That’s why they delayed the 30-year extension to August 1st. The HBP changes are effective next Tuesday, but I suspect that few first timers have $60k kicking around in their RRSPs to use in the HBP right away.
· Extending amortizations to 30 years for new but not resale homes is a gift to builders who will capture some of the incidence effects through higher new home prices that through arbitrage may indirectly raise resale prices over time but by less and slowly. They can’t build enough homes fast enough due to skilled labour and materials shortages so prices and features will ration some of the demand. The flow through benefits will also go to folks building the homes and supplying materials.
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