The Trickle "UP" Effect

Posted by Tim Lintick on Friday, July 26th, 2019 at 12:59pm.

In a few weeks, we are expecting something of a shakeup in the real estate market. On September 2nd, 2019, an Incentive is coming into play, courtesy of the federal government. It is introducing a plan to help first-time home buyers get into the market and own their own home. It is a big part of the Canadian dream, homeownership. Surveys say that homeowners are generally happier overall, feel like a valued part of society, and are a major contributor to the economy. And it has been more difficult to break into the home ownership market since last year, when the federal government introduced its mortgage stress test. Potential buyers are winding up renting instead of buying, and that is having another effect altogether by pushing up rent rates. Landlords are being overwhelmed by demand, and perhaps feel they are entitled to raise their rents higher. It will be interesting to see what the trickle up effect will be with the new Incentive plan. Perhaps the federal government is feeling a little guilty about the stress test, adding another two percent onto a mortgage for qualification purposes. It has certainly hit the financial institutions, some even lowering their benchmark rate in recent weeks in the hopes of gaining some lending business. The Bank of Canada has kept its interest rate steady for the last couple of announcements, an indicator that buyers need a break. If indeed first-time home buyers take advantage of the Incentive to purchase their first home, that will enable those sellers to move upwards, enabling those next sellers to move up, or down, or sideways. It will stir up a little bit of activity in a market which, although steady, has essentially stagnated since the stress test, which stopped some buyers in their tracks. It is not so bad, the Incentive. It is essentially an interest free loan of 5% on a resale home, and up to 10% for a new home, repayable upon the sale of the property or 25 years, whichever comes first. On paper, it looks like a great opportunity. If the property is worth less when it is sold, the government will take the hit. No questions asked. What bank would do that? I think none. Some might feel that perhaps the government might not be the best partner when it comes to purchasing a home, but given the options, it could be a lifesaver. A great way to give first time buyers a chance at actually owning their own home, instead of paying the mortgage for a landlord. And landlords may be faced with making their rents more reasonable, if supply exceeds demand. It's a trickle up effect that could be a win-win, for buyers, sellers, and everyone in between.

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