NEWS UPDATE: Federal Government Raises Insured Mortgage Cap to $1.5M, Expands 30-year Amortizations
Has The Stress Test Had A Positive Impact On The Housing Economy?
From late 2016 until 2018, there have been rule changes by Canadian policymakers in the real estate industry. This led to many future homebuyers being suddenly afraid of owning their own property due to tightened mortgage lending rules, but reflecting on macro results now, it has appeared to be bringing the country’s real estate market more into balance.
The federal housing agency assessed the overall vulnerabilities of the stress test in the national market to “moderate” from “high”, according to a recent report from Ottawa. The CMHC claims it has been due to easing price acceleration for the country as a whole, especially in cities like Toronto and Vancouver which are moving closer to levels supported by fundamentals.
After being rated “high” for ten straight quarters, the overall degree of vulnerability for Canada has changed to “moderate”, the agency said in its report.
So what actually happened back then? Home sales and prices have slowed in Canada after governments at various levels took steps to mitigate the risks of a crash. The federal banking regulator imposed stress tests on new mortgage lending last year, a measure that has been particularly controversial.
Economists, along with realtors and home builders, have argued that the rules should be eased because first-time buyers are being ‘punished’. Economists at TD Bank said that the rules have contributed to bringing down housing activity to a more sustainable level, but there is “scope to tweak the guidelines” if housing undershoots expectations.
Bank of Canada governor Stephen Poloz said last week that after a “huge run-up in housing”, speculation is coming out of the Toronto and Vancouver housing markets, but more time may be needed for it to settle out completely.
The Real Estate Board of Greater Vancouver reported last Thursday that benchmark home prices fell 8.5 per cent in April from a year ago while sales were down 29 per cent. Toronto reports data on Wednesday.
CMHC said that its assessment of overvaluation in Vancouver has changed to moderate from high, and the “conditions of overheating are easing as well”.
All across the country – Vancouver, Toronto, Victoria, and Hamilton continue to see a “high degree of vulnerability” in the overall assessment, “but house prices are moving closer to levels supported by housing market fundamentals” in those cities.
That said, CMHC believes the Montreal and Moncton markets are becoming increasingly expensive, especially the resale markets. Also, vulnerability remains “moderate” for the western cities of Edmonton, Calgary, Saskatoon, Regina and Winnipeg due to “evidence of overbuilding” in these cities.
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