Housing industry experts agree that new mortgage rules taking effect on Dec. 15, 2024, will have a positive impact on the road to recovery for the Canadian housing market. However, their effectiveness will likely be short-lived, hindered by several factors.

The two key changes introduced by the federal government are:

1. Expanding access to 30-year amortizations for all first-time homebuyers and buyers of new builds, aimed at reducing monthly payments.
2. Increasing the insured mortgage limit to $1.5-million, making it easier for buyers in high-cost markets like Toronto and Vancouver to qualify for a mortgage with a down payment below 20 per cent.

These changes, analyzed in a recent report by TD Economist Rishi Sondhi are expected to fuel some activity. 

“We don’t think that these measures alone will unleash a housing boom,” Sondhi explains. “Instead, they’ll likely offer a secondary tailwind to a market that’s already gaining decent traction in 2025 on the back of lower borrowing costs and a gradually improving economy. What’s more, the affordability boost offered by these measures will likely also erode as home prices are raised by their implementation, thereby limiting their effectiveness.”

In other words, these two new changes offer somewhat of a catch-22: While they help more first-time buyers enter the market, the resulting demand will likely drive prices higher, reducing affordability once again.

“There’s no silver bullet solution to help boost the Canadian real estate market,” Karen Yolevski, COO, Royal LePage Real Estate Services Ltd., agrees. “Any new rules that help first-time homebuyers are welcome, but they don’t fix the underlying issues of affordability and supply.”

Effective policies—not just rules—are needed that drive change long-term, she adds.

Rule #1: Extended mortgage amortizations

The report estimates that a first-time homebuyer with a typical family income, facing a typical house price, who puts down the minimum mortgage payment could see their purchasing power increased by around 9 per cent.

While significant, the change applies only to first-time buyers with insured mortgages—a relatively small segment of the market. According to Bank of Canada data, only 44 per cent of sales involve first-time buyers, and just 20 per cent of mortgages issued this year have been in the insured space. TD Economics predicts that share may rise following these changes, but its overall market impact will remain limited.

Rule #2: Insured mortgage cap increase 

Raising the insured mortgage threshold to $1.5-million could make a substantial difference for buyers in high-cost markets. For example, a purchaser buying a $1.2-million detached home in Toronto (the median price in August) could now make a down payment of $95,000, compared to $240,000 under the current rules.

TD Economics estimates that about 20 per cent of homes in Canada are priced between $1-million and 1.5 million, potentially signalling a sizeable boost to activity from this policy.

How will these rules impact the housing market? 

Sondhi projects a notable lift in home sales and prices in early 2025, bolstering what is expected to be a strong year overall. However, the impact will likely be dampened by several factors.

For instance, the extended amortizations benefit only first-time buyers, and the raised insured mortgage limit may not fully address the needs of this group, as many may still struggle to afford homes in the targeted price range.

Yolevski notes some Canadians, particularly those in Vancouver and Toronto, haven’t been able to save enough of a down payment as real estate prices have risen, and these changes might provide a short-term break, says Yolevski.

“Anything that gives more attention to housing is positive,” she emphasizes, adding that every level of government has housing on its radar. “The government needs to focus on getting shovels in the ground as soon as possible to boost housing starts,” she explains, adding that the underlying problem of medium- and long-term supply coupled with affordability can’t be ignored. Unless a plan to continually increase supply is implemented, the success of any rule changes will be short-lived.

Buying power could be increased by 12% for some Canadians

Ron Butler, a veteran mortgage broker with Butler Mortgage Inc. based in Toronto, says Canadian insurers estimate that these two changes combined could lift buying by about 12 per cent—8 per cent by extending amortization to 30 years and 4 per cent by raising the insured mortgage cap to $1.5-million. 

Any movement—even incremental—is positive news, Butler says, adding that mortgage rate decreases will fuel buying across Canada even more. 

Two additional mortgage rules were announced: The first, effective Nov. 21, 2024, exempts homeowners renewing a mortgage from the 2 per cent stress test qualifying rate if they are transferring to another lender for a straight switch. This change provides added flexibility and simplifies the process of shopping for better rates and products. 

The second rule, effective Jan. 15, 2025, allows homeowners to access up to 90 per cent of their home’s value through default-insured refinancing to build secondary suites. The aim is to increase the long-term rental supply in high-demand areas while helping homeowners manage rising mortgage costs.

More changes coming?

There could easily be more changes in the near future, says Butler. This is because introducing new rules doesn’t cost the government anything in their budget, but makes them appear active on the housing front. 

But, again, while short-term supply may be fueled by rule changes, the focus on mid- and long-term supply solutions must remain front and centre for Canadians to truly benefit.