MORTGAGE CHANGES MAY PROVIDE BOOST TO SPRING HOUSING MARKET

Easing of stress test, interest rate cut helps entry level buyers, writes Joanne Paulson

SASKATOON It’s hard to say whether Ottawa’s new mortgage stress test plus the Bank of Canada’s lower benchmark interest rate will equal a silver lining to recent cloudy economic news ... but they certainly won’t hurt.

As the world freaks out about a possible COVID-19 pandemic — which has caused stock markets to plummet and some economies to slow — both the Canadian and American federal banks decided to drop their benchmark rates.

On March 4, in light of falling business and consumer confidence, the BOC dropped its rate 50 basis points to 1.25 per cent.

“Before the outbreak, the global economy was showing signs of stabilizing, as the Bank had projected in its January Monetary Policy Report (MPR). However, COVID-19 represents a significant health threat to people in a growing number of countries,” the bank noted in a news release.

“In consequence, business activity in some regions has fallen sharply and supply chains have been disrupted.”

Just before that call from the BOC, in late February, Ottawa finally saw the error of its ways and changed the mortgage stress test rules, which were originally implemented in 2017 to cool hot markets in Toronto and Vancouver. At first, it targeted those who required mortgage insurance, making qualification much harder for a first-time buyer.

Right now, buyers have to prove they can afford mortgage payments at a rate two points above the Bank of Canada’s fiveyear rate. This is calculated from the big banks’ rates.

As of April 6, however, the stress test rate will be two points above the median five-year rate countrywide. When the change was announced, that amounted to a drop of 30 basis points. (There are 100 points in a percentage point.)

It seems a minor alteration, to be sure, but every little bit helps.

First, mind you, consumers will have to see whether the big bankers actually reduce their mortgage rates, although it’s likely they will. Even they want your business.

So, what might that mean for the spring housing market in our very own fair city?

“It is going to be interesting,” says Norm Fisher, broker/owner of Royal Lepage Vidorra. “The Toronto real estate market’s on fire. Out east they’re seeing 20 offers on a home. You wonder what kind of turmoil it’s going to drive those markets into, if in fact this rate reduction translates into lower mortgage rates. It doesn’t always, (but the banks) definitely have more room to lower rates.

“The (new) mortgage stress test gives buyers about $15,000 worth of additional buying power. I think that will make some difference in our market.

We’re seeing renewed interest in the entry level of the market, for sure. Prices have come down enough over the last four years that first-time buyers are beginning to re-engage with the market.

“We’ve seen an increase in entry-level condo sales, for instance, and town house sales have been fairly brisk, and even showing some price appreciation. At the end of February, town houses were up $7,000 from where they were a year earlier. And actually, single family home prices were up about $1,300 on a year-overyear basis as well, which is the first time we’ve seen that in four years.

“In certain price ranges and certain kinds of housing, we’re starting to see the balance shift. It’s still in balanced territory, but leaning toward a seller’s market.”

Fisher noted home supply relative to demand is fairly light in the $300,000 category.

“We may see some competitive bidding in certain categories as the market heats up in the spring.”

That would definitely make a change. While last year’s market was not bad, from a seller’s point of view, the last four years have been fairly moribund with an oversupply of housing.

It’s unfortunate that fears around a rapidly-moving virus scenario are forcing such changes, to be sure. A slowing economy does not contribute to a healthy housing market — neither for buyers who need their jobs, nor sellers who may need to retire, buy “up” to accommodate growing families or (sadly) move away.

But at least Ottawa has slightly fixed a stress test that was indeed stressful for buyers in many housing markets, including ours, and the Bank of Canada is reacting to current economic conditions.

Meanwhile, wash your hands before signing any contracts, and don’t touch your face. As I write this, there are no cases of COVID-19 in Saskatchewan, thank goodness, but there’s still a flu bug roaming around. (Don’t ask me how I know.)

The (new) mortgage stress test gives buyers about $15,000 worth of additional buying power. I think that will make some difference in our market.