Business Brief: Measuring up the mortgage rules

The federal government introduced new mortgage measures aimed at addressing Canada’s affordability crisis. Today, we delve into why Ottawa is calling them the most “significant mortgage reforms in decades.” But first:

In the news

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Happening today

• Canada reports housing starts and the consumer price index for August.
• Bank of Canada deputy governor Carolyn Rogers speaks in Toronto.
• The U.S. Fed meeting begins in Washington.

Real estate

The pros, cons and politics of the new mortgage rules

Open this photo in gallery:

The measures at a glance

Two significant changes to federal mortgage policy will take effect on Dec. 15, Rachelle Younglai and Bill Curry report.

1. Raising the price cap for insured mortgages to $1.5-million, up from $1-million. (Insured mortgages are required when buying a home with a down payment of less than 20 per cent.)
2. Allowing buyers to take out loans for a 30-year period if they are first-time home buyers or if someone is buying a newly built house. (Previously, the three-decade amortization period was available only to first-time buyers buying newly built houses.)

Prying open a ‘holding pattern’

The news comes as the real-estate market remains “stuck in a holding pattern” despite borrowing costs coming down, according to new data from the Canadian Real Estate Association.

• The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.

The pros

The moves are especially good news for those who haven’t been able to crack the higher-priced markets in Vancouver, Toronto, and other parts of Ontario where home prices above $1-million are the norm.

• The mortgage industry applauded the longer amortization and agreed with Ottawa’s reasoning that it would make home ownership more affordable.
• The measures could break open a gridlock that has held tight even as the prices for borrowing and houses are falling.

Rob Carrick’s in favour, for the most part: “Combining with falling mortgage rates, this does help first-time buyers who are currently priced out of the market,” he told me. “But we also need stable, or even falling, prices. If buyers pour into the market because of the new rules, prices will likely soar and negate any affordability improvements.”

• All things considered, he writes, the new mortgage rules rule. (My paraphrasing.)

The cons

The measures allow homebuyers to carry their mortgage for a longer period of time. But lower monthly payments spread over more years amounts to a higher total interest bill.

• While the moves might lower the bar of entry, they could make mortgages more expensive in the long run.
• There are those who argue a lower bar means more competition, which could raise price.

And Sal Guatieri, a senior economist at the Bank of Montreal, said in a note to clients that if the Bank of Canada cuts rates more than expected, the housing recovery “could take flight,” which would result in ”higher prices that erode the affordability gains of these new measures, and we land back at square one.”

The politics

The governing Liberal Party has been under prolonged pressure to make housing more affordable for younger Canadians.

As Robert Fife and Marieke Walsh reported this week, Prime Minister Justin Trudeau’s handling of housing affordability is one of a slew of criticisms being lobbed at him from inside his own party.

And it’s largely on that issue that Conservative Leader Pierre Poilievre has built a sizable lead over Trudeau in public opinion polls.

What’s behind doors No. 1 and 2? It’s a bit tricky to pin down many major points on which Trudeau and Poilievre diverge in their plans for a more affordable housing environment. Both have pointed at similar issues and ideas: curbing population growth and tying federal infrastructure money to municipal home-building targets, among others.

But one seems to be doing a better job bringing the message home. In a poll last month from Abacus Data, the Conservatives led on four of six key issues, including cost of living, housing, economy and immigration.

Charted

The easy part of CO2 emission reductions is over, as global utilities have shifted away from thermal coal, a prominent commodity and derivative analyst says. The next stage, he tells Scott Barlow, will involve energy-intensive sectors such as steel, cement and paper moving to renewable power – and the development of new investing strategies.

Morning markets

Global markets were mostly higher as investors stayed focused on the U.S. Federal Reserve policy decision tomorrow, when it is expected to begin an easing cycle that could see an outsized interest rate cut. Wall Street futures pointed higher, and TSX futures were in positive territory ahead of inflation figures due out this morning.

Overseas, the pan-European STOXX 600 was up 0.68 per cent in morning trading. Britain’s FTSE 100 rose 0.61 per cent, Germany’s DAX advanced 0.75 per cent and France’s CAC 40 climbed 0.72 per cent.

In Asia, Japan’s Nikkei closed 1.03 per cent lower, while Hong Kong’s Hang Seng gained 1.37 per cent.

The Canadian dollar traded at 73.55 U.S. cents.