There were a lot of questions when the federal government announced the First Time Home Buyers Initiative (FTHBI) last month, which was developed to help young people afford homes.
Now the Canadian Mortgage and Housing Corporation (CMHC) has clarified that the FTHBI only applies to homes that cost $505,000 or less, assuming a 5% down payment.
The initiative is only available to homebuyers whose household incomes are $120,000 or less. It’s designed to help homebuyers by providing up to 5% of a home’s value or 10% if it’s a new construction build.
Commentators have been split on whether the FTHBI would actually help homebuyers in a meaningful way. While some believed that it could give young homebuyers a leg up, especially in the wake of news that it would take the average wage-earner 34 years to save enough money for a down payment in Vancouver, and nine years to save enough for a home in Toronto, others were more wary.
Some have criticised the initiative as useless in big cities like Toronto and Vancouver, where homes that cost less than $505,000 are hard to find. In Vancouver, the average price of a home stood at $1,016,600 in February. In Toronto, it was $780,397.
Still, the CMHC stood by their choice in Thursday’s release, reminding homebuyers that average home prices should not be confused with the price of a starter home.
“It may not be a condo in Yaletown or a house in Riverdale, but there are options in both metropolitan areas to accommodate this program,” the release read.
Ten percent of home sales in Vancouver are for homes that cost less than $500,000, while 23% of transactions in Toronto are for homes less than that amount.
CMHC also said it expects the FTHBI will only push Canadian home prices up by 0.2 to 0.4%.
This is a much lower rate of inflation than other housing affordability measures would have introduced, said the CMHC. In the past year, widely discussed solutions included lowering the qualification threshold of the mortgage stress test by 1%, and extending the maximum amortization period for mortgages to 30 years.
These measures would have pushed home prices up by five or six times more than the maximum inflation introduced by the FTHBI. The initiative was unveiled as part of the federal government’s annual budget back in March.