LINDA NGUYEN
Canada’s largest real estate board is calling on the federal government to revisit whether a stricter mortgage stress test introduced last year is still needed, arguing that the policy has negatively affected the economy and Toronto’s once red-hot housing market.
“While we saw buyers return to the market in the second half of 2018, we have to have an honest discussion on whether or not today’s homebuyers are being stress tested against rates that are realistic,” said John DiMichele, chief executive of the Toronto Real Estate Board (TREB) in a statement Wednesday. “Home sales in the GTA, and Canada more broadly, play a huge role in economic growth, job creation and government revenues every year. Looking through this lens, policy-makers need to be aware of unintended consequences the stress test could have on the housing market and broader economy.”
The stress test, which came into effect in 2018, cooled housing markets in Toronto and Vancouver by limiting the ability of those with a more than 20-per-cent down payment to qualify for mortgages.
The stricter rules require borrowers to prove that they can service their uninsured mortgage at a qualifying rate of the greater of the contractual mortgage rate plus two percentage points or the fiveyear benchmark rate published by the Bank of Canada.
The policy also reduced the maximum amount buyers would be able to borrow to buy a home. An existing stress test already required those with insured mortgages to qualify at the central bank’s benchmark five-year mortgage rule.
On Tuesday, the Office of the Superintendent of Financial Institutions assistant superintendent Carolyn Rogers defended the stricter rules, saying that a “margin of safety” was still “prudent” in the current economic climate. She also said the group was open to changes when warranted.
TREB, which represents more than 52,000 real estate agents across the region, says under the stress test rules, homebuyers have to qualify for monthly mortgage payments nearly $700 more than what they would actually pay.
“In order to account for the higher qualification standard, intending home buyers have adjusted their preferences, including the type of home they intend on purchasing,” said the report, resulting in the increased popularity of condos and townhouses over detached homes.