Will Premium Increases Impact the Housing Market?

Effective May 1, mortgage insurance premiums have increased. The question is, how will this impact the Canadian real estate market?

The announcement at the end of February by Canada Mortgage and Housing Corporation (CMHC) had many real estate watchers buzzing, not so much because of the extra cost, which boils down to an increase of $5 a month on a typical mortgage payment, but about whether the move is a positive one.

The increase doesn’t affect current homeowners, so the “who” is once again first-time home buyers. It’s a lucky new buyer who can put down the 20 percent down payment now required to skirt around mortgage default insurance; most first-timers will still have to buy mortgage insurance, either from CMHC or from its two competitors, Genworth Canada and Canada Guaranty, who have followed suit.

The government-owned CMHC is the country’s national housing agency and reports to Parliament. The changes it makes often signal the government’s intentions, and some believe the most recent change is only the latest in a string of signals from Ottawa that the Canadian housing market is over-heated. The concern is that a greater proportion of household income is now being spent on housing, and that rate increases (when, not if, they come) might put some homeowners at risk of defaulting on their mortgages.

CMHC officials deny the move is a government signal, and most observers believe the move was made by the corporation for business reasons, and that it’s a good one. The consensus is that the small increase won’t significantly affect the housing market, although one bank official did express concern that the increase will be rolled into monthly mortgage payments and further increase household debt.

Although first-time buyers, in particular, won’t like the increase (and may have bought earlier this spring to beat the deadline), it may prove to be much ado about nothing in the future.