What is the First-Time Home Buyer Incentive?

The 2019 Canadian Federal Pre-Budget was released Tuesday, March 19th and plans to introduce a new program called the “First-Time Home Buyer Incentive”. This new funding hopes to alleviate some of the stress on first time home buyer’s when it comes to housing affordability. According to the budget, the government predicts that approximately 100,000 first-time home buyers would benefit from the incentive over the next three years. If the government were to implement the plan, here is what it may look like.

How could the “First-Time Home Buyer Incentive” help in Vancouver?

One part of the incentive would allow first-time home buyers that have a minimum down payment for an insured mortgage to make an application to finance a portion of their purchase through a shared equity mortgage with the Canada Mortgage and Housing Corporation (CMHC). According to The Vancouver Sun, eligible buyers could be offered a ten percent shared equity mortgage for a new home or a five percent for an existing home. The Canadian government will be able to recoup its cost when a home is sold. This proposed incentive will be available to households with incomes under $120,000 and on mortgages that are no more than four times the household’s total income. As the Globe and Mail points out, this restriction limits the purchase price to be just below $480,000. Click here to view the proposed First-Time Home Buyer Incentive here.

Every month the Real Estate Board of Greater Vancouver releases sales stats for Metro Vancouver. Now looking at the latest statistics provided for March 2019 in Metro Vancouver the benchmark sale price (benchmark representing a typical property within each market) for the overall residential properties is $1,011,200. The only cities for apartments with a benchmark price below $500,000 would be Ladner, Maple Ridge, Pitt Meadows, Port Coquitlam, Squamish and Tsawwassen. That’s not to say there aren’t homes below $500,000 in cities such as Vancouver, Burnaby or Coquitlam, they just aren’t as abundant as the aforementioned cities.

Looking at the Benchmark Prices (BP) in Metro Vancouver, the First-Time Home Buyer Incentive would only help in the current market for apartments in certain areas and not for majority of single family detached properties or townhomes. Burnaby North, Burnaby East and Vancouver East’s apartment BP increased by 0.5% from February to March. These areas are already past the benchmark price of $480,000. If the increase remains the same, the difference between the benchmark price and the limit of the First-Time Home Buyer Incentive would continue to grow further apart. Even in areas where the apartment benchmark prices decreased, such as Burnaby South, Vancouver West and Richmond, their prices are still well above the $480,000 and would need to drop significantly to qualify for the proposed incentive.

If we were to look at the apartments with a sales median price below $480,000, the cities are Port Coquitlam, Maple Ridge, Whistler and Pemberton. Looking at the previous month the median price of Burnaby jumped from $557,500 to $574,250. In Coquitlam the median price of apartments went from $478,000 to $527,000. Whereas if you looked at Vancouver East’s median price, the selling price went from $576,000 to $558,350. As the Home Buyer’s Incentive has not been approved yet, prices may change by the time it would come into effect.

Immediate Increased Withdrawals from your RRSP

The second part of the “First-Time Home Buyer Incentive” allows higher maximum tax-free withdrawals from the Registered Retirement Savings Plan (RRSP). This would increase the amount from $25,000 to $35,000 which, according to the Globe and Mail, is effective immediately.

Chances are that since the majority of homes in most areas do not fit below the $480,000 benchmark price average, this proposed First-Time Home Buyer Incentive will most likely not be available for a majority of properties in Vancouver and Burnaby. If anything the incentive would only be applicable to some apartments and not a majority of townhomes or detached properties. However the higher tax-free withdrawals from RRSPs will give a slight edge to a buyer’s purchasing power. But is that withdrawal enough, well that might be a different story.

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Sources:

https://www.budget.gc.ca/2019/docs/plan/chap-01-en.html#Introducing-the-First-Time-Home-Buyer-Incentive

https://www.theglobeandmail.com/investing/personal-finance/article-federal-budget-2019-eight-ways-the-budget-will-affect-your-personal/

https://budget.gc.ca/2019/docs/themes/housing-logement-en.html

https://vancouversun.com/news/local-news/first-time-home-buyers-big-winners-in-budget-but-will-incentives-work-in-b-c

http://members.rebgv.org/news/REBGV-Stats-Pkg-March-2019.pdf