72% think the First Home Savings Account will have little to no impact on their ability to purchase a home: survey

Ottawa announced a new tax-free First Home Savings Account (FHSA) in its 2022 federal budget earlier this month. But while the account aims to help more Canadians enter the housing market, most believe it will do little to help them purchase a home, a recent Hardbacon survey found. 

The FHSA – expected to be introduced in 2023 – will assist home buyers with saving for a down payment on their first home. Younger Canadians between the ages of 18 and 40 can save up to $8,000 a year over five years for a total of $40,000.

The account will offer a tax deduction and tax-free withdrawals, combining the benefits of both retired registered savings plans (RRSPs) and tax-free savings accounts (TSFAs). 

Yet, while a majority (70 per cent) of Canadians want to use the FHSA, most (72 per cent) think it won’t help them buy a home.  

Skyrocketing home prices is one reason. Some (39 per cent) think the FHSA is unfair because it leaves out people who want to buy in more expensive markets.  

The Canada Mortgage and Housing Corp. only allows a minimum down payment of $40,000 for a maximum purchase price of $650,000. In comparison, the average price of a home in Canada reached a record $816,720 in February. 

Those who do plan to put money into the account next year are hoping to cut spending (32 per cent), decrease RRSP contributions (16 per cent), and reduce (12 per cent) or take money out (nine per cent) of their TFSA. Some (three per cent) also intend to take money out of their RRSP or reduce contributions to a Registered Education Savings Plan (two per cent). 

Of the 30 per cent who don’t plan to use the savings tool, over half (54 per cent) don’t understand its advantages and the others (46 per cent) believe they won’t have enough money to contribute.  

“The FHSA is a tax-free savings account, but it doesn’t mean that it actually makes saving for a down payment any easier, especially in hotter real estate markets,” Hardbacon’s editor-in-chief Stefani Balinsky said in a press release. 

Still, the bulk of Canadians (88 per cent) want to become homeowners one day.

“What the survey found is that the most effective source of a down payment is the Bank of Mom and Dad. Still, not everyone is that fortunate,” said Balinsky. 


Source: financialpost.com
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The Bank of Canada's move to hike its interest rate may help control runaway home prices in the London region, but it won't do much to increase affordability or help first-time homebuyers enter the market, observers say.

In what was the central bank’s biggest hike in more than 20 years, the
key interest rate was raised Wednesday by half a percentage point to one per cent. The move is meant to help fight inflation that hit a three-decade high of 5.7 per cent in February.

But because the rate also impacts the cost of bank loans, including variable-rate mortgages, it’s expected to lower demand for housing across the country.

“Having higher interest rates will cool off the market because it will make buying a new property or financing a new property more expensive,” said Mike Moffatt, an associate professor at the Ivey business school at Western University.

The expected dip in demand nationally, however, may not be as big in London, which has other forces at play pushing prices up, Moffatt said.

Key among them is the growth the region is experiencing. According to the latest census data, the London area’s population grew at a rate of 10 per cent between 2016 and 2021, making it the fastest-growing metropolitan area outside of British Columbia and the fastest in Ontario.

Skyline of Downtown London, Ontario

“As the pandemic sort of continues and work from home becomes more commonplace for workers, a lot of families who are living in the Greater Toronto Area are making their way down to Southwestern Ontario because they want more space, a bigger backyard . . . so expect demand to stay strong,” Moffatt said.

Home prices in the London region have been on a tear over the past five years and especially since the start of the COVID-19 pandemic in March 2020.

The average resale price of a home, for instance, hit a record of $825,000 in February, $210,000 more than in February 2021, before dipping slightly for the first time in months in March.

But even at those heights, London remains more affordable than many communities in Ontario, said Randy Pawlowski, president of the London and St. Thomas Association of Realtors.

“When you look at the average price across the country, our area is still $115,000 below the other centres to the east of us and some of those municipalities,” he said. “So there’s still upward pressure everywhere.”

He added: “Clients are wondering if they’ve missed the peak by not bringing properties to market sooner. But you know, who’s to say for sure?”

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Source: lfpress.com
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Housing affordability is a key focus for the Liberals in their 2022 federal budget, with promises of a ban on some foreign buyers for two years and billions of dollars to help first-time home buyers get into the market.

The federal government outlined its plans to tackle sky-high housing costs in Thursday's budget — including a temporary ban on foreign buyers, a crackdown on speculators, a pledge to double the pace of new home construction and a new tax-sheltered way for Canadians to save up to buy a home.

The government is moving ahead with something it floated on the campaign trail last year: a Tax-Free First Home Savings Account. The budget offered some rudimentary details:

Starting next year, Canadians will be entitled to contribute up to $8,000 per year to the accounts, which allow them to save and invest funds to buy a home in the most tax-advantageous way. Currently, Canadians can use anything from a savings account to an RRSP or TFSA to save for their first home — but all come with a certain amount of tax restrictions.

RRSPs provide a tax rebate when people contribute, but any money withdrawn under the existing Home Buyer's plan must be replenished later without the tax break. Conversely, Canadians who use their TFSAs to save for a home can grow those funds in a tax-sheltered way, but they don't get the tax break when they make the investment.

The new program adopts the most appealing parts of those two programs by giving savers a tax rebate for contributing and also allowing those savings to grow without being taxed on the gain. It's "tax-free in, tax-free out," as the budget puts it.

The program has a maximum lifetime contribution limit of $40,000, and the government estimates the Tax-Free First Home Savings Account program will cost it about $725 million in tax revenue. Finance Minister Chrystia Freeland said the government sees that as money well spent.

"We will make it easier for our young people to get those first keys of their own," she said of the government's various housing initiatives, which she described as "perhaps the most ambitious plan that Canada has ever had."

First-time buyers say they need help

The new account may be great news for savers, but it won't do much to improve affordability for those who don't have the money to spare.

"I think it's going to be huge," said Jamie Golombek, head of the tax and estate planning team at CIBC. "But if you don't have the money, this plan does nothing for you."

Paul Kershaw, an associate professor at the University of British Columbia and head of the think-tank Generation Squeezed, says the program risks driving home prices up even higher by making it easier for those who can already save to buy in.

"The more that we facilitate that acceleration of accumulating the next down payment, the more we're likely to be bidding up home prices," he said in an interview. "While the budget is acknowledging there's a crisis, it's failing to recognize that our country is really addicted now to high and rising home values."

Other initiatives

The budget once again targets some old housing boogeymen that have been blamed for high prices before: flippers, speculators, blind bidding and foreign buyers.

The government is proposing a two-year ban on purchases of residential real estate by people and companies who aren't citizens or permanent residents. Refugees, some international students and people with work permits would be exempt from the policy. Notably, the ban wouldn't include recreational property, such as cottages, cabins and other vacation homes.

It's a populist policy sure to resonate with many, but previous versions of such plans have not had much of an impact. A Statistics Canada report found that less than five per cent of homes in Toronto and Vancouver were owned by non-residents.

John Pasalis, founder and president of Toronto-based real estate firm Realosophy says the move may not do much, but it is still a step in the right direction toward ensuring that people buying homes are mostly doing so to live in them, not simply as financial investments.

"I don't think foreign buyers in and of themselves are the dominant buyers in the market," he said in an interview. "They're not the cause of rising home prices or rapidly rising home prices, but it's still a good policy to put forward."

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Source: https://www.cbc.ca/
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