Young people buying houses

The real losers of the Trudeau years could well be the very people who helped get him elected — millennials keen to get on the first rung of the housing ladder.

The impact of the Liberal government’s decision to add a “stress test” hurdle has not yet shown up in housing sales data. Housing has remained relatively healthy since the policy was introduced in October to apply an interest rate far above market rates for any mortgage backed by Ottawa.

But mortgage experts suggest it has been kept afloat by buyers who were pre-approved under the old rules and those who rushed into the market as interest rates began to rise. “With preapprovals for up to 120 days, we could have closings as late as mid-February that escape the test,” said Will Dunning, chief economist for Mortgage Professionals Canada.

Industry watchers believe the new policy will have an adverse impact on the market sooner rather than later. The Ottawa-based Canadian Real Estate Association warned that 2017 will see a decline in real estate prices for the first time since 2008 — and it laid the blame squarely at the government’s door.

CREA expects the average price of a home to fall by 2.8 per cent to $475,900 next year.

Regulatory changes, which mean those seeking mortgage insurance must now qualify based on the posted five-year fixed rate of 4.64 per cent, will disproportionately hit first-time buyers.

The fear among some economists is that a decline in house prices might trigger a broader crash in the economy.

Dunning notes that there are strong hints the government would like to see a drop in housing prices.

But he argues that if house prices fall at a time of high mortgage indebtedness, conditions would be ripe for economic disaster.

“If I have a mortgage for 95 per cent of the value of my house, and the value of the house falls by, let’s say 10 per cent, I have a big problem. It affects the way I act in the economy. If that happens to enough people, there is an enormous problem,” he said.

If Dunning is right, the impact of government policy on the housing market will be one of the big stories to watch in 2017.

IF THAT HAPPENS TO ENOUGH PEOPLE, THERE IS AN ENORMOUS PROBLEM.