Liberal win: Good for first-time home buyers, investors

But prepare for an “uptick” in interest rates



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Last night’s election was clear: We weren’t happy with status quo.

“It was a very clear verdict that Canadians were seeking real change,” said Pramod Udiaver, CEO of online advisor service, Invisor. “The Liberals campaigned and won with a focus on the middle-class,” says Udiaver, “with many of their promises attempting to make a meaningful difference for middle-income families.”

While most Canadians still struggle with paying too much in taxes, trying to maximize savings while making sound financial decisions, the new Liberal majority government will have real impact on the nation’s real estate market.

Continued interest by foreign investors

“From a fiscal point of view, the Liberal government will be moving Canada from a modestly restrictive economy to an economy with modest stimulus,” explained Craig Alexander, vice president of economic analysis at the C. D. Howe Institute.

But he’s not too concerned about this stimulus. Alexander explained that the $10-billion annual spend promised by the Liberals (for the next couple of years) won’t really impact the overall valuations of the Canadian economy.

“Analysts will look at how fast the economy is growing, along with the budget deficits, and even with the modest Liberal spending, the debt to GDP will continue to decline, meaning international investors won’t get too worried as a result.”

For homebuyers in the hot markets of Toronto and Vancouver—and to smaller extent in Montreal and Saskatoon—this will probably mean continued interest by foreign investors in Canadian real estate. For the last year, foreign investors have been partly blamed for the run-up in housing prices in the hot markets of Toronto and Vancouver.

First-time buyers might get incentives

One way the Liberals propose to deal with housing affordability is to analyze all factors that help or hinder housing affordability in Toronto and Vancouver and in other parts of Canada.

The Liberals have also made vague promises about helping the first-time homebuyer, explained Robert McLister, independent mortgage broker and founder of “This might mean looser policies, such as longer amortization limits for first-time buyers, but so far few details have been released.”

Higher interest rates…are coming

Also, the economic stimulus promised by the newly elected Liberals will also impact Joe Canada’s bottom-line, said McLister. “When a government spends money and provides fiscal support to the economy, that usually means higher inflation and that usually translates to higher interest rates.” As such, McLister said that Canadian homeowners should expect “a potential uptick in interest rates.”  This may help cool overheated housing markets in Toronto or Vancouver, although the Liberals have also promised to examine what can be done in these two markets, specifically, when it comes to making housing affordable for Canadians.

Changes to the Home Buyers’ Plan

Homeowners may, yet, come out ahead with the Liberals, explained McLister. “They’ve promised to open up access to the Home Buyers’ Plan (HBP), which will give more people access to money for a down payment on a house.”  The HBP has a limit of $25,000 and the Liberals don’t plan to increase that but they will loosen the existing qualification rules for the HBP to allow more Canadians affected by sudden and significant life changes—such as divorce, death of a spouse or an employment move—to access their RRSP savings for a down payment.

“This modernizes the HBP and doesn’t limit it to just first-time homebuyers,” explains Peter Veselinovich, VP of housing and mortgages for Investors Group. “It means those facing significant life events, including adult-children who want to create in-law suites for elderly parents, will have access to more financing.”

Renters will win

Trudeau’s plans may also benefit renters and real estate investors, said McLister. The Liberals had promised a 10-year investment in social housing infrastructure, prioritizing affordable housing and seniors’ facilities (including building more units and refurbishing existing units). There will also be tax breaks—including the removal of the GST on new capital investments—to encourage the construction of new rental housing.

“I suspect the Liberals won’t really put their mark on housing policy until the next budget, which comes out next spring,” says McLister.

Read more from Romana King at Home Owner on Facebook »

2 comments on “Liberal win: Good for first-time home buyers, investors

  1. The US has being trying to stimulate their economy by quantitative easing since 2008 and they don’t have inflation so if there is stimulus why should they provoke inflation in Canada? They have tried to stimulate the EU and also Japan and nothing has happened there. I don’t forsee a rise in interest rates anytime soon. I think we have a greater chance of seeing deflation rather than inflation even with the stimulous. I checked out the interest rates you can now get a fixed rate 3 year mortgage for 2.2%. That doesn’t signal inflation to me. I hope the liberals don’t try and make it easier for first time home buyers to buy houses because it will lead to the same fiasco they have in Australia and actually leads to less affordability in the long run.


  2. The Canadian housing market (along with the stock market and Education industry) is in a bubble even larger than the one experienced by the US in 2006. The Liberal policy that you call “good for Canadian real estate” in is reality just propping up the bubble such that the coming correction will be that much more painful. Remember that the key thing driving housing prices at the moment is cheap credit being pumped into the economy by the Bank of Canada. Interest rates will inevitably rise (regardless of BOC policy), and when they do, expect housing prices to plummet across the board. Even worse, the BOC has exceedingly little wiggle room to generate inflation (as evidenced by low inflation and weak economic growth EVEN as interest rates sit at record lows, and EVEN as mortgage debt, household debt and public debt sit at record highs.)

    This all adds up to 3 things:

    1) The next economic correction (circa 2017) will be exceedingly painful (2 to 3x worse than 2008), with the brunt of it borne by Baby Boomers who are depending on home equity and stocks to finance a substantial portion of their retirement.

    2) Deflation may become par for the course (as evidenced by the Fed’s inability to generate inflation today even with record low interest rates), which will be devastating for borrowers of all stripes (particularly governments and home owners).

    3) The next recession will be characterized by massive lay-offs to Education, Healthcare, and the Public Sector in general, who until now have largely remained unscathed thanks to massive borrowing that will not continue as our economy worsens, interest rates rise, and the Chinese economy slows down.


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