Creating Stability in the Canadian Housing Market

Diane Buchanan • October 3, 2016

This morning, Finance Minister Bill Morneau announced new housing measures, changes meant to alleviate risk in Canada’s current housing market. The measures include:

  • Standardizing lending criteria for high- and low-ratio mortgages, including a mortgage stress test
  • Closing tax loopholes for capital gains exemptions on principal residence sales
  • Consulting with industry stakeholders to ensure risk is properly distributed.

It is good to note that these changes will not have any impact on existing mortgage holders, they will be applied going forward.

“Canadians have told us they are concerned about growing household debt and rapidly rising house prices in some of our biggest cities, particularly in markets like Toronto and Vancouver. These concerns have grown over many years, and there are no quick fixes. The federal government plays an important role in ensuring that housing markets are stable and function efficiently. My colleagues and I are committed to continuing to work with provinces and municipalities to address the concerns of middle class families, and to ensure Canada’s housing markets and financial system remain strong, stable and resilient well into the future.”

– Bill Morneau, Minister of Finance

During his press conference, the Finance Minister said repeatedly that he believes the housing market is stable, and that these are simply preventative measures. Over the next week there will be more information available about the specifics of what this announcement means, and that will be shared here, however in the mean time, here is the announcement from the government found on the Department of Finance website.

Backgrounder: Ensuring a Stable Housing Market for All Canadians

Protecting the long-term financial security of Canadians is a cornerstone of the Government of Canada’s efforts to help the middle class and those working hard to join it. Recognizing that for many families, their homes are their most important asset, the Government is taking preventative measures today to ensure a healthy, competitive and stable housing market for all Canadians.

Today’s actions recognize the effect that years of low interest rates and shifting attitudes towards debt and indebtedness have had on the housing market. While the overall Canadian housing market is sound, house prices have risen significantly in some markets, notably Toronto and Vancouver, and some borrowers are taking on high levels of debt. In these circumstances, it is important to ensure that these debt levels are sustainable, that lenders are acting prudently, and that financial stability risks do not arise in the event of increases in interest rates or a housing market downturn.

The Minister of Finance has been actively engaged on the housing file. One of the Government’s first steps since being elected nearly a year ago was to address pockets of risk in the housing market by raising the minimum down payment for homes priced above $500,000. Since then, Department of Finance Canada officials have been further studying the housing market, and have led a working group with municipalities and provinces, as well as federal agencies such as the Office of the Superintendent of Financial Institutions and Canada Mortgage and Housing Corporation.

This in-depth analysis, informed by the productive dialogue with our partners, has informed today’s announcement of three complementary measures designed to reinforce the Canadian housing finance system, to help protect the long-term financial security of borrowers, and to improve tax fairness for Canadian homeowners. Analysis and cooperation are ongoing as the Government continues to carefully monitor the situation.

1. Bringing Consistency to Insured Mortgage Rules

“Mortgage rate stress test” for all insured borrowers:

To help ensure new homeowners can afford their mortgages even when interest rates begin to rise, mortgage insurance rules require in some cases that lenders “stress test” a borrower’s ability to make their mortgage payments at a higher interest rate. Currently, this requirement only applies to a subset of insured mortgages with variable interest rates or fixed interest rates with terms less than five years. Effective October 17, 2016, this requirement will apply to all insured mortgages , including fixed-rate mortgages with terms of five years and more. Homeowners with an existing insured mortgage or those renewing existing insured mortgages are not affected by this measure.

Safer lending:

There are currently different rules in place depending on what proportion of the value of the property is covered by a loan. For example, mortgage insurance criteria for a loan that represents 80 per cent of the value of the property or less ( low loan-to-value ratio mortgages) are not as stringent as for high loan-to-value ratio mortgages (loans that represent more than 80 per cent of the value of the property). This could lead to increased risk for the taxpayers who ultimately back insured mortgages. To help ensure that taxpayer support for mortgage funding is targeted towards safer lending, effective November 30, 2016, mortgages insured by lenders through portfolio insurance and other low loan-to-value ratio mortgage insurance must meet the same loan eligibility criteria as high loan-to-value insured mortgages.

2. Improving Tax Fairness and Closing Loopholes

The Government is committed to tax fairness, and to ensuring that the exemption from capital gains tax on the sale of a principal residence is available only in appropriate cases. Proposed changes to the tax rules would ensure that the principal residence capital gains exemption is not abused, including by non-residents buying and selling a property in the same year. An additional measure would improve compliance and administration of the tax system with respect to dispositions of real estate, including the sale of a principal residence.

3. Managing Risk and Protecting Taxpayers

The Government continuously monitors the housing market and is committed to implementing policy measures that maintain a healthy, competitive and stable housing market. As a part of this effort, the Government is looking at whether the distribution of risk in Canada’s housing finance system is balanced, and appropriately reflects all parties’ abilities to share in the management of housing risks.

To this end, the Government will launch a consultation process with market participants this fall on lender risk sharing, a potential policy option that would require mortgage lenders to manage a portion of loan losses on insured mortgages that default. Currently, lenders are able to transfer virtually all of the risk of insured mortgages to mortgage insurers, and indirectly to taxpayers through the government guarantee.

If you have any questions about what any of this means, please don’t hesitate to contact me anytime!

DIANE BUCHANAN
 Mortgage Broker

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Bank of Canada Rate Announcement Jun 4th, 2025

By Diane Buchanan • June 4, 2025
Bank of Canada holds policy rate at 2¾%. FOR IMMEDIATE RELEASE Media Relations Ottawa, Ontario June 4, 2025 The Bank of Canada today maintained its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70%. Since the April Monetary Policy Report, the US administration has continued to increase and decrease various tariffs. China and the United States have stepped back from extremely high tariffs and bilateral trade negotiations have begun with a number of countries. However, the outcomes of these negotiations are highly uncertain, tariff rates are well above their levels at the beginning of 2025, and new trade actions are still being threatened. Uncertainty remains high. While the global economy has shown resilience in recent months, this partly reflects a temporary surge in activity to get ahead of tariffs. In the United States, domestic demand remained relatively strong but higher imports pulled down first-quarter GDP. US inflation has ticked down but remains above 2%, with the price effects of tariffs still to come. In Europe, economic growth has been supported by exports, while defence spending is set to increase. China’s economy has slowed as the effects of past fiscal support fade. More recently, high tariffs have begun to curtail Chinese exports to the US. Since the financial market turmoil in April, risk assets have largely recovered and volatility has diminished, although markets remain sensitive to US policy announcements. Oil prices have fluctuated but remain close to their levels at the time of the April MPR. In Canada, economic growth in the first quarter came in at 2.2%, slightly stronger than the Bank had forecast, while the composition of GDP growth was largely as expected. The pull-forward of exports to the United States and inventory accumulation boosted activity, with final domestic demand roughly flat. Strong spending on machinery and equipment held up growth in business investment by more than expected. Consumption slowed from its very strong fourth-quarter pace, but continued to grow despite a large drop in consumer confidence. Housing activity was down, driven by a sharp contraction in resales. Government spending also declined. The labour market has weakened, particularly in trade-intensive sectors, and unemployment has risen to 6.9%. The economy is expected to be considerably weaker in the second quarter, with the strength in exports and inventories reversing and final domestic demand remaining subdued. CPI inflation eased to 1.7% in April, as the elimination of the federal consumer carbon tax reduced inflation by 0.6 percentage points. Excluding taxes, inflation rose 2.3% in April, slightly stronger than the Bank had expected. The Bank’s preferred measures of core inflation, as well as other measures of underlying inflation, moved up. Recent surveys indicate that households continue to expect that tariffs will raise prices and many businesses say they intend to pass on the costs of higher tariffs. The Bank will be watching all these indicators closely to gauge how inflationary pressures are evolving. With uncertainty about US tariffs still high, the Canadian economy softer but not sharply weaker, and some unexpected firmness in recent inflation data, Governing Council decided to hold the policy rate as we gain more information on US trade policy and its impacts. We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs. Governing Council is proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy. These include: the extent to which higher US tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases are passed on to consumer prices; and how inflation expectations evolve. We are focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval. We will support economic growth while ensuring inflation remains well controlled. Information note The next scheduled date for announcing the overnight rate target is July 30, 2025. The Bank will publish its next MPR at the same time.

Get Protection From A Pre-Approval

By Diane Buchanan • May 28, 2025
There is no doubt about it, buying a home can be an emotional experience. Especially in a competitive housing market where you feel compelled to bid over the asking price to have a shot at getting into the market. Buying a home is a game of balancing needs and wants while being honest with yourself about those very needs and wants. It’s hard to get it right, figuring out what’s negotiable and what isn’t, what you can live with and what you can’t live without. Finding that balance between what makes sense in your head and what feels right in your heart is challenging. And the further you are in the process, the more desperate you may feel. One of the biggest mistakes you can make when shopping for a property is to fall in love with something you can’t afford. Doing this almost certainly guarantees that nothing else will compare, and you will inevitably find yourself “settling” for something that is actually quite nice. Something that would have been perfect had you not already fallen in love with something out of your price range. So before you ever look at a property, you should know exactly what you can qualify for so that you can shop within a set price range and you won’t be disappointed. Protect yourself with a mortgage pre-approval. A pre-approval does a few things It will outline your buying power. You will be able to shop with confidence, knowing exactly how much you can spend. It will uncover any issues that might arise in qualifying for a mortgage, for example, mistakes on your credit bureau. It will outline the necessary supporting documentation required to get a mortgage so you can be prepared. It will secure a rate for 30 to 120 days, depending on your mortgage product. It will save your heart from the pain of falling in love with something you can’t afford. Obviously, there is nothing wrong with looking at all types of property and getting a good handle on the market; however, a pre-approval will protect you from believing you can qualify for more than you can actually afford. Get a pre-approval before you start shopping; your heart will thank you. If you’d like to walk through your financial situation and get pre-approved for a mortgage, let’s talk. It would be a pleasure to work with you!