New Mortgage Insurance Reforms: Let’s Clear the Confusion
Starting December 15, 2024, the Canadian government is making big changes to mortgage rules. These changes are meant to help more people buy homes by giving them more flexible payment options and increasing the price limits for insured mortgages.There has been some confusion around these reforms, the biggest misnomer being that they are only for First Time Buyers. In fact, these changes do not apply only to first-time buyers; they apply to anyone who qualifies for an insured mortgage, with one exception regarding amortization on resale homes.Let’s break down these new rules in simple terms and review some examples.Key ChangesHigher Price Limit for Insured MortgagesCurrently, insured mortgages are only available for homes priced up to $1 million. Starting on December 15th, 2024, this limit will increase to $1.5 million. This means more people can buy homes with less than 20% down.Minimum Down PaymentsFor homes priced up to $1.5 million, you will need:5% down on the first $500,00010% down on the remaining amount above $500,00030-Year Amortization for First-Time Buyers on BOTH New Build AND ResaleIf you’re a first-time homebuyer, you can now spread your mortgage payments over 30 years on either New or Resale homes.25-Year Max Amortization for NON-First time Home Buyers on Resale HomesThis is the key difference where NON-first timers are treated differently. While 30-year amortization is available on new builds for non-first-timers, resale homes will only have a maximum 25-year amortization.Example 1: First-Time Buyer Purchasing a Home (Resale or New Build)Let’s take Finn and Farrah; first-time homebuyers looking to purchase a home priced at $1.2 million. Whether they buy a resale home (a home that’s been lived in before) or a new build (a brand-new home), they can now get a 30-year amortization. This will reduce their monthly payments compared to the standard 25 years. Here’s how the numbers work for these first-timers:(*For all the examples here, we will use a 4.5% interest rate compounded semi-annually)Down payment:5% on the first $500,000 = $25,00010% on the remaining $700,000 = $70,000Total down payment = $95,000Loan amount: $1,105,000 (before adding mortgage insurance)Mortgage insurance premium: 4% of loan amount = $44,200New loan amount with insurance: $1,149,200Monthly Payments25-year amortization: $6,360.5130-year amortization: $5,794.45Finn & Farrah would save about $566.06 per month by choosing the 30-year amortization.Example 2: A Couple Selling and Buying a Resale Home (NOT First-Timers)Rob and Rachel are selling their current home worth $900,000 and are looking to buy a resale home priced at $1.3 million. They will not have 20% down, but with the new rules, they can get an insured mortgage with a smaller down payment.One key difference for this couple is that, although they qualify for a smaller down payment, they cannot access the 30-year amortization on this resale purchase. If they want a 30-year amortization, they would need to buy a new build (see example 3 below).Down payment:5% on the first $500,000 = $25,00010% on the remaining $800,000 = $80,000Total down payment = $105,000Loan amount: $1,195,000 (before adding mortgage insurance)Mortgage insurance premium: 4% of loan amount = $47,800New loan amount with insurance: $1,242,800Monthly Payments:25-year amortization: $6,878.56Since this is a resale home and they are not first-time buyers, the 30-year amortization is not available.Example 3: A Couple Selling and Buying a New BuildNow, let’s take the same NON-first-timer couple, Rob & Rachel, but this time they are buying a new build for $1.3 million. Since they are purchasing a new construction, they qualify for the 30-year amortization, even though they are not first-time buyers.The loan details will remain the same as the above Example 2, except for the available amortizationMonthly Payments:25-year amortization: $6,878.5630-year amortization: $6,266.39The couple would save about $612.17 per month by opting for a 30-year amortization on the new build.Here’s a summary of the new rules and how they apply to different types of buyers:These new reforms aim to make homeownership more accessible for Canadians by offering more flexible payment options and increasing the price cap for insured mortgages. However, it’s important to remember that while longer amortizations reduce monthly payments, they also mean paying more interest over time. If you have questions about how these changes might affect you, speak with a mortgage professional to find the best plan for your situation.
Toronto’s September Real Estate Market Overview: Sales, Inventory, and Rents
The Toronto real estate market continues to send mixed signals, with sales and inventory levels shifting in different directions. Sales TrendsIn August, seasonally adjusted home sales in Toronto rose slightly by 0.6% month-over-month (m/m) according to Edge Realty’s September Metro Deep Dive. This was accompanied by a revised upward figure for July. However, year-over-year (y/y) sales were down 6% overall, with the condo segment in the city seeing a sharper decline of 15% y/y. Both the condo and single-family segments had the lowest sales numbers for any August in the past 25 years.Source: Edge Realty AnalyticsNew Listings and Inventory LevelsAlthough there were some expectations for a rise in new listings, seasonally adjusted listings were down 1.6% in August. This continues a trend of lower-than-usual listings over the past 18 months. Active inventory across the Greater Toronto Area (GTA) remains elevated, increasing by 46% y/y and reaching its highest levels since 2008, per the Edge Realty report. Condo inventory, in particular, remains at record highs, adding pressure on market conditions.The sales-to-new listings ratio remains below 40%, a level historically associated with price declines. Additionally, the months of inventory for condos are at record highs, while single-family homes are at their highest since 2008. Source: Edge Realty AnalyticsSource: Edge Realty AnalyticsMarket Balance and Price TrendsDespite sales-to-new listings and months of industry numbers, prices have remained stable. The MLS Home Price Index (HPI) remained flat in August, as prices remained effectively unchanged for the past four months. This contrasts with expectations of price declines based on high inventory levels, creating a potential area of future concern. However, Ben Rabidoux, Edge Realty, predicts that without a market tightening before winter, prices could start to decline.Rental Market and Investor Cash FlowIn August 2023, Toronto’s rental market continued its trend of increasing rental prices. The average rent for a one-bedroom unit climbed by 1.4% from the previous month, reaching $2,620, while two-bedroom units saw a 2.4% increase, with average rents hitting $3,413. This positions Toronto as the second most expensive city in Canada for renters, just behind Vancouver. However, the condo rental market remains under pressure, as the Edge Realy report noted rents dropping 7% y/y in August. This decline is partly attributed to high levels of condo completions. However, cash flow fundamentals for investors have improved somewhat. Falling prices and declining mortgage rates have reduced the monthly cash flow burn rate by more than half compared to late 2023, although it is still negative at this point. Rabidoux anticipates that investors may return by early next year, but only if mortgage rates continue to decline. Source: Edge Realty AnalyticsConstruction ActivityRental construction surged in July, resulting in a 1.1% increase in total dwellings under construction in the GTA, largely driven by a 5.5% rise in rental construction. There are 103,000 total dwellings in the construction pipeline, with 73,000 condos and 19,000 rental units under development. However, single-family housing starts remain low, with only 11,000 units in construction. July’s condo sales were notably weak, down 67% y/y, and this will likely lead to fewer condo starts in the coming year, potentially exacerbating future supply shortages, according to the Edge Realty report.Source: Edge Realty AnalyticsEmployment and Market OutlookThe economic backdrop has also been challenging. The unemployment rate in the GTA increased to 8.8% in August, the highest level outside of the pandemic since 2012, and higher than Canada’s unemployment rate overall of 6.6%Looking ahead, the Toronto Regional Real Estate Board (TRREB) expects that lower borrowing costs over the next year and a half will help home buyers by reducing both mortgage payments and home prices. Despite anticipated demand increases in 2025, ample inventory is expected to keep price growth moderate during the initial recovery.
Double-digit condo inventory surges across Canada as sellers return to the market: Re/Max
A new report from Re/Max Canada reveals that condominium inventory has surged across major Canadian cities, as sellers have returned to the market anticipating increased buyer demand in late 2024 and early 2025. The report, which examined condominium activity in seven key markets from January to August 2024, notes significant growth in condominium listings. Leading the way are Fraser Valley (up 58.7 per cent), Greater Toronto (52.8 per cent), Calgary (52.4 per cent) and Ottawa (44.5 per cent), with more modest gains seen in Edmonton (17.7 per cent), Halifax (8.1 per cent) and Vancouver (7.3 per cent). Despite the influx of new listings, condominium values have held steady in most markets. Calgary saw a 15 per cent increase in average condominium prices, followed by Edmonton at 4.0 per cent, Ottawa at 2.3 per cent and smaller gains in Vancouver, Fraser Valley and Halifax. Greater Toronto was the only market where prices dipped, down 2.0 per cent year-over-year. Sales activity in the condominium sector varied, with Edmonton leading with about a 37 per cent year-over-year increase in sales, marking its best performance in five years. Calgary saw a more modest rise in sales (2.6 per cent). Meanwhile, other markets experienced slower condominium sales as potential buyers continued to wait for more favourable interest rates. Future outlook: Current lull is ‘the calm before the storm’ “High interest rates and stringent lending policies pummelled first-time buyers in recent years, preventing many from reaching their homeownership goal, despite having to pay record-high rental costs that mirrored mortgage payments,” says Re/Max Canada president, Christopher Alexander. “The current lull is the calm before the storm,” he adds. Alexander says as of spring next year, pent-up demand should fuel stronger market activity, especially at entry-level price points, as both first-time buyers and investors vie for affordable condominiums once again. Market dynamics and regional trends Re/Max found that Edmonton and Calgary remain in a seller’s market, while cities like Vancouver, Ottawa and Halifax have more balanced conditions and are likely to change next year. Toronto, while still experiencing sluggish activity, is expected to turn around quickly once market conditions improve, as prices are believed to have bottomed out. Even as new listings rise, buyers remain cautious. Early interest rate cuts by the Bank of Canada have not yet spurred significant buyer activity, but with more cuts anticipated, market activity is expected to pick up, particularly among end users seeking affordable condominium options. “Even in softer markets, hot pockets tend to emerge,” says Alexander. “In the condominium segment we’re seeing a diverse mix among the most in-demand areas, ranging from traditional blue-chip communities to gentrifying up-and-comers, as well as suburban hot spots.” He explains that condominiums in top recreational areas were among the markets posting stronger sales activity. In Toronto, midtown neighbourhoods such as Yonge-Eglinton and Forest Hill South saw double-digit sales growth in the first eight months of 2024, as did communities in the city’s west end, including High Park and Roncesvalles. In Vancouver, suburban areas like Port Coquitlam saw a notable 11 per cent increase in apartment sales. Investors take a step back except in key markets While end users dominate the current condominium market, Re/Max observed a pullback among investors, particularly in Greater Toronto, where up to 30 per cent of investors have experienced negative cash flow due to rising mortgage carrying costs. Investor confidence is expected to recover as interest rates drop and rental incomes rise, making investment more favourable once again. In contrast, Edmonton has bucked the trend, attracting investors seeking affordability. With condominium supply outpacing demand, savvy investors have been revitalizing older condominium stock to rent out at premium rates. Out-of-province investors, particularly from Ontario and British Columbia, are capitalizing on Edmonton’s lower costs and development-friendly environment. Unique opportunity for buyers: ‘Arguably the most favourable climate condo buyers have seen in recent years’ “In many markets, end users are in the driver’s seat right now,” explains Alexander. “While investors are an important part of the purchaser pool, this point in time is a unique opportunity for aspiring condominium buyers who, for a short window of time, will likely see less competition from investors and a better supply of product.” He notes this is especially true in Toronto and Vancouver, where the impact of monetary policy has hit investor profit margins to a greater extent despite high rent and low vacancy rates. “With values set to rise, this is arguably the most favourable climate condominium buyers have seen in recent years.” ‘Inevitable that further development will see condos become driving force accounting for lion’s share of (future) sales’ As immigration and in-migration between provinces continue to boost demand, condominiums are becoming both an entry point and a “middle step” in Canada’s most expensive markets. While population growth may slow in the short term, Statistics Canada projects that Canada’s population could reach as high as 49 million by 2035, ensuring long-term demand for condominiums. “The housing mix is evolving very quickly as a result of densification and urbanization. Condominiums now represent the heart of our largest cities, and it’s inevitable that further development will see condominiums become the driving force accounting for the lion’s share of sales in years to come,” says Alexander. “It’s a physical and cultural shift that Canadians are not only adjusting to but are embracing, as younger generations redefine urban neighbourhoods, sparking demand for vibrant and robust amenities, infusing new life in Canada’s urban cores in the process.” Review the full report, including regional highlights.
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