Canada Eases Mortgage Rules to Address Housing Crisis

In a bid to tackle Canada's ongoing housing crisis, Finance Minister Chrystia Freeland announced a series of adjustments to mortgage rules on Monday. These measures aim to make housing more affordable, though experts remain skeptical about their long-term impact, with some warning that they may further drive up housing prices.

One of the key changes is an increase in the cap on insured mortgages, rising from $1 million to $1.5 million, effective December 15. This will allow more Canadians to purchase homes with down payments of less than 20 per cent. Previously, mortgage insurance was required for those putting down less than 20 per cent, but it was only available for homes priced at $1 million or below. The new limit extends that cap to $1.5 million.

In addition, the government has expanded the availability of 30-year mortgage terms. While previously limited to first-time buyers of newly built homes, the new rules extend the option to all first-time homebuyers and buyers of newly constructed houses.

Freeland stated that these adjustments are designed to "incentivize new housing construction and address the housing shortage."

However, reactions to the announcement have been mixed. Penelope Graham, a mortgage expert at RateHub, highlighted that the increased insurance cap and longer amortization period could enhance access to the housing market for first-time buyers. Still, she expressed concerns about how the new rules might impact affordability for those renewing their mortgages.

Marc Desormaux, an economist at Desjardins, noted that while some homebuyers will benefit, the broader effect could be an increase in demand, which could, in turn, put upward pressure on home prices and worsen affordability in the long run.

Homebuilding groups have long advocated for longer amortization periods, arguing that they could spur more housing construction by encouraging homebuying. However, Desormaux cautioned that there are deeper issues, such as a shortage of skilled labor in the construction industry and rising building costs, that hinder housing development.

Surrey based one of the top agent in industry, Chirag Nagpal from Future Assets Group criticized the changes as "a quick fix" that fails to address the root causes of the housing crisis. He argued that the new policies are designed to stimulate home sales rather than provide a sustainable solution to housing affordability.

"The reality is, there's no quick fix to our housing crisis," Pasalis said. "Long-term measures are needed to truly resolve it."

Unlike the United States, where homeowners can lock in fixed mortgage rates for 15 or 30 years, Canadian mortgages typically last 25 years, with interest rates resetting every three or five years. This structure exposes borrowers to rising interest rates, exacerbating the country's affordability challenges.

Prime Minister Justin Trudeau has seen his approval ratings drop to near-record lows, with high housing costs being a major factor in the government's declining popularity.