Desjardins Affordability Index: New Mortgage Policies Will Have Mixed Effects on Housing Affordability

Canadian homebuyers have several reasons to be cautiously optimistic at the close of 2024. Fixed and variable mortgage rates have fallen this year, and average home prices in many cities have come down from their peaks. Meanwhile the federal government has announced new policies, including 30‑year amortization of insured mortgages for all first-time homebuyers and all buyers of newly built homes, as well as an increase in the cap on insured mortgages to $1.5M, both effective December 15, 2024.

Looking forward, while we do anticipate a modest rise in average home prices in each province over the next two years, higher incomes and lower mortgage rates should prevent any further deterioration in affordability.

The new 30‑year amortization for first-time homebuyers and all buyers of newly built homes will help lower monthly mortgage payments, thereby improving affordability—so long as there’s no offsetting increase in home prices.

On the other hand, increasing the price cap for insured mortgages from $1M to $1.5M isn’t intended to help homebuyers by lowering their monthly payments. Instead, it targets the difficulty of amassing a 20% down payment on a home when many properties, especially in large cities, are now selling for over $1M. This policy will be particularly impactful in cities like Toronto, where 1 in 3 houses are priced between $1M and $1.5M, allowing buyers to get a house in this range for as little as $75k down instead of over $200k. That said, it could still take the average household over 7 years to save enough for a down payment, even if they’re socking away 10% of their after-tax income each month.

Our work shows that mortgage payments on an average-priced home in Canada could decrease by about $600 per month from the combination of longer amortizations and preferred borrowing rates for insured mortgages, assuming home prices don’t rise more quickly in response. But this would be more than offset by having a minimum down payment as low as 5% instead of 20%, plus the cost of mortgage insurance if buyers roll it into their mortgage. As a result, we’ve concluded that the federal government’s new mortgage measures are likely to have little overall impact on affordability in Canada.

The key to meaningfully improving affordability over the long term will be increasing the supply of housing. But the construction industry continues to face persistent headwinds from labour shortages, an aging workforce and high building material costs. And while borrowing costs are coming down, they remain high and homebuilder sentiment is poor.