Higher mortgage insurance premiums could hurt first-time buyers, economists say

TORONTO – Some realtors and economists say higher mortgage insurance premiums introduced recently by Genworth Canada and CMHC could cause first-time homebuyers to delay their purchases.

“It’s certainly going to bite into first-time, low-equity homebuyer sales,” said Helmut Pastrick, chief economist with Central 1 Credit Union.

“I don’t expect a major impact on housing sales activity as a result of this change, but at the margin, it will slow first-time buyer sales to some extent.”

Canada Mortgage and Housing Corp. announced last week that insurance premiums for buyers who have a downpayment of 10 per cent or less will go up by 15 per cent starting June 1. Genworth matched the move on Monday with an identical increase.

Canada Guaranty, the third mortgage insurance provider in the country, has yet to announce a boost to its premiums.

Both CMHC and Genworth said they don’t expect the changes to have any significant impacts on housing demand.

But Ron Hollet, a Halifax-based broker with Re/Max Nova, says he expects the changes will force a number of first-time buyers out of the market.

“Then what happens is it’s a domino effect,” said Hollet. “If the first-time homebuyer doesn’t come in to the market, then the guy who owns that house can’t move to a new one.”

Some buyers could postpone buying a home until they have a larger downpayment saved up, said Pastrick.

Others could tap into the unregulated, secondary mortgage market — sometimes referred to as the shadow banking sector — to borrow enough cash to put them over the 10 per cent downpayment threshold, said Marcus Tzaferis, chief economist at Morcan Direct.

Tzaferis said in hot housing markets like Toronto and Vancouver — where an average detached home costs more than $1 million and is therefore not insurable by CMHC — condo buyers will be the ones who feel the impact of the changes.

However, he doesn’t disagree with the decision to boost premiums.

“If you think about it, the riskiest part of our market is this massive boom in condos that we’ve seen over the last 10 or 15 years,” Tzaferis said.

“And the riskiest borrowers are the borrowers that are putting the least amount of money down on those properties. So CMHC is saying: ‘We’re worried about the values of these condos.'”

Tzaferis made his comments as the Toronto Real Estate Board announced that March home sales were up 11 per cent from a year ago, while the average selling price climbed 10 per cent.

Phil Soper, president and CEO of Royal LePage, said that for most homebuyers, the change will amount to less than $10 a month.

However, first-time buyers have been targeted by a slew of new restrictive policy changes in recent years, he noted.

“As mortgage insurance rules have been tightened over the last half a dozen years, each successive change has made it a little bit more difficult for young people to buy a home,” Soper said.

“When you pair the eroding affordability in Toronto and Vancouver with the more restrictive access to home insurance, we are making it more difficult for young people to pursue their dreams of home ownership, and I think that’s a dangerous thing.”

Soper said the federal government should be implementing policies that would make it easier for first-time buyers to purchase homes. For instance, policymakers could revise the Home Buyer’s Plan, a federal government program that lets Canadians withdraw $25,000 from their RRSPs without penalty, as long as they eventually repay the money.

“The amount of money that you can transfer from the homebuyers’ plan hasn’t been updated in years, and house prices have climbed across the country,” he said.

Follow Alexandra Posadzki on Twitter at @alexposadzki