New down payment rules may ‘cool down’ Canada’s housing market

The Canadian Mortgage and Housing Corporation will require, from February, a 10% down payment on the portion of any mortgage it insures over $500,000, up from the current 5%, a rule which may, according to an economics professor at the University of Winnipeg, help to ‘cool down’ Canada’s housing market. Reactions to the news have been mixed with some saying it will have little impact, while others claim the rule will make it harder for buyers. However, it is more likely that the impact will be greater for buyers in places like Montreal, Toronto and Calgary, where house prices are well above the average home price of $500,000. 

A new rule requiring larger minimum down payments on high-prices homes is receiving mixed reaction in Iqaluit, with one lender saying it will make it tougher for people to buy a home, while a realtor maintains the overall impact on Iqaluit's housing market will be small.

Starting in February, the Canadian Mortgage and Housing Corporation will require a 10 per cent down payment on the portion of any mortgage it insures over $500,000. Current regulations require at least five per cent down to qualify for CMHC insurance — which is often insisted upon by lenders who issue mortgages worth at least 80 per cent of a home's value.

But with homes in Nunavut's capital often going for more than $500,000, Kathleen Gomes said that will force some people to have to save more money to buy a home. She's the manager at First Nations Bank's Iqaluit branch.

"It's a catch-22 for those higher-income people in Nunavut. Is the government basically forcing them to save more and spend less in order to go into home ownership? Because affordability-wise, they can't afford it," Gomes said.

Many in Nunavut rely on the Nunavut Housing Corporation's down payment assistance program, which offers one-time grants to those buying a home. The program isn't available to people above a certain income threshold — somewhere over $177,000 in Iqaluit.

"I understand the government can say, 'people earning $200,000 per year can definitely afford to save for a down payment,'" Gomes said, "but that's a judgement call on people's lifestyles. Maybe they have five or six kids in daycare, or truck payments. And rent here is so high, so that's a factor too."

But Iqaluit-based realtor John Matthews argues differently. He says if people can afford a $600,000 home, they can afford the new down payment regulations.

Under the new regulations, the minimum down payment on a $600,000 home would be $35,000, or $5,000 more than under the old rules.

Matthews says two-thirds of the Iqaluit home sales he brokered last year went for more than $500,000.

"I don't think [the new regulations] are going to have that great an impact on us in Iqaluit," Matthews said. "I think it may have more of an impact on the purchasers in Montreal, Toronto and Calgary where the houses really are in the millions. It's going to hit them more."

Home prices in Iqaluit could fall

University of Winnipeg economics professor Dr. Melanie O'Gorman argues this new policy may actually help to reduce home prices in Iqaluit.

By making it harder for people to buy homes, the new policy is meant to "cool down" Canada's housing market, and in turn reduce demand. O`Gorman says the same could happen in Nunavut.

"The Iqaluit housing market may be affected by this new regulation, that is not targeting the Iqaluit market per se," O'Gorman wrote in an email to CBC.

"That said, as it will likely bring house prices down, it likely isn't a harmful regulation."