Mortgage Stress Tests
December 5th 2017
Mortgage Stress Tests. How will the new mortgage rules affect Real Estate sales in Niagara on the Lake? It’s a good question. Ultimately, sales at the bottom of the market eventually push sales at the top. It has become much more difficult to attain financing in Canada than it ever has. I will include an article in today’s Globe and mail by Janet McFarland, it offers some good insight. You can Get more clarity using a mortgage calculator to determine what your mortgage rates will be. Who gets hit? First time home buyers. I believe that the Old Town is getting beyond the reach of young families looking to make their first investment. Any property coming on the market below 600k is being snapped up by GTA retirees, looking to make an investment in their future, making St Catharines, Niagara Falls and other similar locations the only viable option.
OnQFinancial’s website states that approximately 6% of the buying power will be taken out of the GTA market. To my way of thinking, this has to effect overall pricing. But, our market is so finite, that inventory is still being snapped up at prices which have increased over the past several years. We seem to have leveled off somewhat the craziness knocked out of the market, which if you follow my blog, you’ll know that I think it is a good trend.
What does all of this mean? First time home buyers are slowly being squeezed out of the Niagara market. Ultimately, I don’t think that it will effect the Baby Boomer retirees in the near future as they make their effort to get out of the big city. We will see some moderation, but no real drop in our local values in the next few years, which is a good thing for those wishing to sell. I’ve always said that we live in an insulated market. We do feel the effects of the big city trends, but they are moderated by high demand. Niagara is a beautiful place, with lots to do, only a short drive from the big urban centers. I know that I wouldn’t want to live anyplace else.
On the contrary, if you are trying to sell a house and need to do it quickly, there is a number of local business that specialize in this field. Frank Buys Houses Fast will buy your house fast and pay you the full cost.
REAL ESTATE REPORTER
PUBLISHED DECEMBER 5, 2017 UPDATED 4 HOURS AGO
Tougher mortgage stress-testing rules could make it impossible for 40,000 to 50,000 Canadians to buy a home each year, driving down real estate sales and reducing the anticipated pace of new mortgage- lending growth, according to a new analysis.
A report by Mortgage Professionals Canada, a national mortgage-broker industry association, forecasts about 18 per cent of home buyers – or about 100,000 people a year – would not qualify for their preferred home purchase option under new rules announced in October by Canada’s banking regulator, the Office of the Superintendent of Financial Institutions.
Websites publishing Toronto home sales data quick to spring up after federal court ruling
Mortgage Professionals Canada chief economist Will Dunning, who wrote the report released Tuesday, estimates 50 per cent to 60 per cent of those not qualifying will be able to adjust their expectations and buy a cheaper home, but he anticipates the other 40 per cent to 50 per cent will likely not buy anything because the adjustments they have to make would price them out of the market.
It will leave about 40,000 to 50,000 potential buyers a year shut out of the market, which means a 6-per- cent to 7.5-per-cent drop next year in home sales, including sales of both new and resale homes, he said.
He added that rising interest rates are expected to have a similar level of impact on home buyers next year, on top of the stress-test rule impact.
“Between the two – the policy effect and the interest-rate effect – we’re looking at somewhere between 12-per-cent and 15-per-cent less sales next year than we saw in 2016,” Mr. Dunning said in an interview.
The stress-testing rules, which will take effect Jan. 1, will require borrowers who are making a down payment of more than 20 per cent of a home’s value to prove they could still afford their mortgage payments if interest rates were significantly higher. The OSFI rule change will require borrowers to qualify for mortgages at the greater of the Bank of Canada’s five-year benchmark rate or an interest rate two percentage points higher than they negotiated.
Mr. Dunning said federal regulators have introduced six prior policy changes since 2010 impacting mortgage eligibility in Canada, but until now, only the package of changes in 2012 – which reduced maximum amortizations to 25 years from 30 years – had a substantial impact on home sales.
“It appears that this new policy change is also likely to have substantive and prolonged consequences,” the study concludes.
While home sales are expected to fall, the report forecasts 5.5-per-cent growth in the amount of outstanding mortgage credit in 2018, which is a reduction from 5.9-per-cent growth in 2017 and the prior 12-year average growth rate of 7.3 per cent.
Mr. Dunning said mortgage borrowing is expected to grow despite his forecast of falling sales, largely because there are so many new homes under construction that have already been started and have buyers scheduled to take possession next year.
“There have been a lot of housing starts lately and those are going to be completed next year, so that’s going to require a lot of new mortgages on those newly completed dwellings,” he said. “That’s what’s holding it up. If you look further out, there’s going to be a further drop off in credit growth in 2019 and 2020.”
Many analysts have predicted buyers will have to reduce their target prices by 20 per cent under the new stress-testing rules, but the report said those estimates ignore the fact that most people borrow much less than the amount their banks qualify them to borrow, so have leeway to adjust.
Based on data from a survey the mortgage association conducted in the spring – asking potential home buyers their target purchase prices, their down payments and their borrowing rates – Mr. Dunning predicts average home buyers would need to reduce their target prices by just 6.8 per cent or by $31,000 under the new rules.