The Liberals’ new majority gives them all the power they need to influence Canada’s mortgage market. Interest rates, mortgage policy and affordable housing initiatives will all be affected.
Here’s some of what the mortgage market can expect from Mr. Trudeau’s new government:
- Higher bond yields: Balancing the budget is not a priority for the Liberals until 2019. Trudeau is expected to go on a spending spree and bond traders aren’t keen about it. It suggests a greater supply of government debt and potentially higher long-term yields to come. That, of course, could mean at least slightly higher fixed mortgage rates than we’d otherwise see.
- A More Hawkish Poloz: The odds just dropped for a cut in prime rate. More spending by Ottawa puts less pressure on governor Stephen Poloz to stimulate the economy with rate cuts. The implied probability of a rate hike by next October has almost doubled, from 8% yesterday to 15% as we speak.
- Wider RRSP Access: The Liberals say they’ll open access to the RRSP Home Buyer’s Plan, particularly for homebuyers coping with significant life changes (divorce, death of a spouse, a sick or elderly family member, etc.). More access to down payment funds will prop up housing sales and home ownership slightly, and support home prices.
- More “Affordability”: The Liberal platform includes a review of housing policy in high-priced markets. The new government will “consider all policy tools that could keep home ownership within reach.” What that means, we’ll have to wait and see. It could definitely be positive for renters and income property investors, given the Liberals have promised to “direct CMHC…to provide financing to support the construction” of new rental housing.
- First-timer Support: Trudeau’s government will add more flexible programs for first-time homebuyers. This could mean any number of things, potentially even higher amortization limits for new buyers.
- New Blood at the DoF: The Liberals will be installing a new Minister of Finance, who has enormous power over housing regulation. Will he or she be as hands-off on mortgage policy as the outgoing Joe Oliver? We’re guessing not. We’ll likely have an answer by the time the Liberals release their first budget next spring.
Here’s more on the Liberal housing platform.
I suspect that the day to day running of the government ,facing a looming crisis in the Canadian economy, and world issues will put most of the “promises” of the Liberals on the backburner- ( as it would have for the Conservative, if they did make any promises?) to be dealt with when the other crisis were to disappear. Tinkering with rrsp s and downpayments and ams, and “affordable” housing will all be pushed aside by rising unemployment, the dropping dollar from poor exports, real estate “adjustments” and unsettled world relations. Election promises ( by all parties) seem to have little to do with the actual reality of governing.
I think I need a drink after reading that scenario Bruce. :/
On the bright side, in that grim of an environment, at least we’d have low mortgage rates to look forward to. Woo hoo.
Great article Rob
Too early to know what’s coming, a couple BDMs suggested today that rates would start to move in the spring with this new goverment.
Thanks Joel.
Which way?
Up
Rob,
As usual, a concise breakdown of things to watch out for. Thank you for that!
Without the background to feel comfortable making my own set of predictions there, I will say that it will be interesting to see which changes you correctly anticipate.
I agree completely that increasing bond yields may be one of the first things to come, and I look forward to seeing how they try to implement the RRSP homebuyer program proposal. I like the idea that it will become more accessible, but wouldn’t know where to start in tracking and overseeing a more complicated program like that. I wish them luck in creating something user-friendly for those that may need it most.