Budget measures mean more debt for millennials warns RBC

Millennials may have gained some hope from the federal budget this week but they shouldn’t be too quick to celebrate says Canada’s largest lender.

RBC Economics’ senior economist Robert Hogue says that the First-Time Buyer Incentive and boosted HBP level will provide “temporary relief at best” for millennials.

In a client note, he says that in the near-term first-time buyers may find it easier to get on the housing ladder, but the longer-term effects could be inflated home prices, especially as supply-side issues were not fully addressed.

That could result in a narrow window where young Canadians are encouraged to buy, before affordability challenges put a brake on the benefits.

Debt burden
Then there’s the effect on the finances of those that manage to take advantage of the incentives.

“Perhaps the more perverse effect is that these measures could add to millennials’ heavy debt loads,” warns Hogue.

He says that the new program may operate in a similar way to BC’s home owner mortgage and equity partnership introduced in 2017 and cancelled in 2018 due to low participation.

That means the shared equity mortgage would be registered on title as a second mortgage on the property. “In other words, it’s another debt,” he says.

Hogue also sees little benefit for potential buyers in Vancouver and Toronto where only the smallest sector of homes will be affordable under the rules.

Slower spring market?
Another potential negative of the federal budget announcements is how the housing market will perform this spring and summer.

Those wanting to use the First-Time Buyer Incentive will have to wait until September which could mean a spike in first-time buyer activity in the fall, with corresponding price rises.

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