Gauging impact of proposed change
Proposed mortgage stress-test changes may only slightly dampen demand
Calgary's resales for March were the highest in almost 15 years.
Yet the momentum in the real estate market may face headwinds from proposed changes to the mortgage stress-test rules, say market experts.
The city saw a 147 per cent yearover-year increase in resales last month with 2,903 homes changing hands — the highest since 2007, Calgary Real Estate Board statistics show.
As well, the benchmark price grew by seven per cent year over year to $441,900.
Yet that momentum could be set for a pause in the coming months as the Office of the Superintendent of Financial Institutions recently announced it aims to increase the qualifying rate, known as the “stress test.”
As of June 1, the qualifying threshold for uninsured borrowers (more than 20 per cent for a down payment) is proposed to increase to 5.25 per cent for a fiveyear mortgage or two percentage points above borrowers' contracted mortgage rate, whichever is greater.
“Borrowers would be looking at about a 50 basis point increase,” says Ann-marie Lurie, chief economist with CREB, referring to the current qualifying rate based on the Bank of Canada's five-year rate of 4.79 per cent.
As such, “the change could cool the market a bit in our city, which is really not fully recovered in terms of pricing.”
Despite recent price gains, the benchmark price in Calgary is still five per cent below the high of 2014. Consequently the Calgary market is still in recovery mode, she adds.
The increased threshold would reduce maximum affordability among uninsured buyers by five per cent, Canwise Financial president James Laird noted in a recent news release.
“OSFI is hoping this change will slow the exponential increase in home values,” he added.
Additionally, it remains unclear if the change will apply to insured mortgages. For that to happen, the federal government would need to approve the change, according to a recent blog post on Canadianmortgagetrends.com. What's more, OSFI is still accepting public feedback on the current proposal, which could lead to amendments, it noted.
As the change currently stands, Calgary realtor Corinne Lyall is not overly concerned about its effect on the recovering market.
“The impact shouldn't be too significant for the move-up buyer,” says the broker/owner of Royal Lepage Benchmark. “Most of the sales occur at the lower price ranges and typically for those qualifying for insurable mortgages.”
Yet, Lyall adds if the higher stress test threshold is expanded to include insured borrowers, the effect would be concerning as it would dampen demand among the largest part of the real estate market: first-time buyers.
Lurie adds expanded application of the increased stress test rate would indeed have more effect. Still, it is unclear just how much it would hurt demand. As she further explains, many buyers might only have to dampen expectations for what they want in a home, including seeking housing types other than single-family homes. The largest market segment has experienced the lion's share of demand growth during the pandemic as buyers increasingly seek more floor space.
“So it could push people down a bit, but is it enough to really cool demand?” she adds. “I'm not sure that's the case.”