Down Payment Change Yields Low Impact

Back in December when the finance department hiked minimum down payments, it said the change would “dampen somewhat the pace of housing activity over the next year.”

If “somewhat” means “barely noticeable,” then the regulation has achieved its goal, at least in Toronto and Vancouver.

Effective February 15, the minimum down payment rose — up to 2.5 percentage points — on homes between $500,000 and $1 million. Since then, there’s been no perceptible slowdown in Toronto and Vancouver home sales. Those two cities, which are among the fastest-appreciating markets in Canada, were the primary targets of the Department of Finance’s new policy.


Vancouver Avg home price

In the first full month following the rule change, the Canadian Real Estate Association (CREA) says that sales of single-family homes over $500,000 were the highest ever in March, in both Toronto and Vancouver.

“While it is still premature to reach a verdict on the efficacy of this measure to cool Canada’s two hottest markets, the early evidence suggests that it had little effect to date,” RBC economist Robert Hague said in a research note. 

A breakdown of home sales by property value, courtesy of the Toronto Real Estate Board and the Real Estate Board of Greater Vancouver, further illustrates the runaway sales of higher-priced homes.


March data reveals that homes valued between $500,000 and $1 million rose 28% in Toronto and 27% in Vancouver compared to last year. There’s no telling what sales would have been without higher down payments, but take a $750,000 home, for example. An additional 1.67% down payment isn’t exactly an insurmountable obstacle for most buying at that price point.

First-time buyers will take the brunt of these changes. “The affordability of homes in these mar­kets has taken a further hit…,” points out National Bank Financial in a report this week. Following the rule implementation, “…The time required to accumulate a minimum down payment for the representative home increased in Q1 by 11 months in Toronto and by 34 months in Vancouver.” 

Moreover, while regulators have not materially slowed higher-risk housing markets, larger down payments have nonetheless had two positive outcomes. For one, new buyers in the $500,000 to $1 million range now have more to lose if they don’t pay their mortgage. In addition, as Hague notes “…We believe that the measure has enhanced the degree of prudence in the mortgage adjudication process.” And there’s nothing wrong with that.

Sidebar: Sales of homes valued at more than $1 million also exploded in March, up more than 60% in Toronto and Vancouver.

By Steve Huebl & Rob McLister


  1. When you have “paper pushers” or bureaucrats making “policies”….it almost always never ever work. All these changes that was directed at “cooling” the market only hurt those who really wanted their first home.

  2. I think looking purely at the number of completed transaction pre and post change is only considering half the story.

    What you’re not considering is the fact that all these new home owners have 2.5% less debt. While this percentage at face value may seem small, the money they end up saving (assuming normal paydown schedule) is not insiginicant, and only leads them to be mortgage free that much sooner.

    That in itself is valuable to society.

    To the previous commenter: where they think rules of this type hurt first time home owners.
    A comment like that stems imho, stems from a society where we feel entitled to home ownership and it’s become the social norm/acceptable to take on large loans.

    If a first-time home buyer can’t stomach the 2.5%increase in downpayment, maybe that home isn’t right for them

    1. CC, Thanks for the comment. This article’s aim was to evaluate the new rule’s ability to dampen housing activity. As one would expect, bigger down payments save interest. But that tells us nothing on its own. Does it mean that Ottawa should legislate even bigger down payments to save people more interest? What’s the right number? 10%, 15%, 20%, 25%? Any argument supporting higher minimum down payments must speak to the opportunity costs: a) of the additional money itself (which may generate a better return elsewhere); b) of the additional time required to save (i.e., the “cost” of missing out on home price appreciation, which roughly tracks inflation long-term); and c) of the lost social and economic benefits of home buying earlier in people’s lives (a key reason why our government promotes access to housing). Then, of course, there’s the question of how much bigger down payments actually mitigate economic risk. So much to consider here…on a different day.

  3. per Rob- “the question of how much bigger down payments actually mitigate economic risk”.
    This is the question, and its answer that has lead me to my on-going rants of the changes in cmhc premiums and amounts needed for down by first time buyers or low downpayment buyers. It may seem natural to think that the higher the downpayment, the lower losses are to cmhc. But I question that, as I have not seen data suggestive such. Anecdotely ( ie non scientific), I find: 1) the percentage of 5% downpayment buyers is less in numbers than higher downpayments; and 2) the losses of the 5% downer are less than higher downpayment groups.- certainly my borrowers with low down payments seem to be much more concerned about making sure their payments are paid on time than my “healthier” down borrowers. I think these changes have been added from a politically correct format- ie “lets (try to) slow down the market”, while punishing a group that does not deserve such extra costs.

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