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Home buying power reduced by new mortgage stress test
Nov 03, 2017

by Brenden Morgan

For those of you who weren’t paying attention, the Office of the Superintendent of Financial Institutions (OSFI) has introduced a new mortgage stress test for consumers looking to purchase a home with more than a 20-per-cent down payment that comes into effect on January 1, 2018. These are uninsured mortgages with the least amount of risk to a lending institute.

What this means is that all new mortgage clients will need to qualify for a mortgage based on the greater of the five-year Bank Of Canada rate (currently 4.89 per cent), or the contract mortgage rate plus two per cent, even if they have a down payment of 20 per cent or more.

This adds yet another barrier to home buyers, when you consider the mortgage stress test that was announced by the federal government in October 2016 on insured mortgages, or those buyers with less than a 20-per-cent down payment and an increase in CMHC (insurance) fees last spring, the third increase in those fees in four years.

It’s clear that the feds are wanting to slow down the real estate markets in those locations that are becoming out of reach for some buyers, which makes complete sense.

However, from past experience, it should be clear that a “one-size-fits-all” housing policy in Canada does not work. All real estate markets are local and markets throughout the country that are balanced or in decline will become collateral damage due to the changes.

Two territories and four provinces in Canada have actually seen home prices fall in the past year. The average price of a home in Canada this past summer was just over $500,000. Yet, if you took Toronto and Vancouver out of the equation, the average price of a home in Canada would have been just over $390,000. There’s no surprise as to which real estate markets are unaffordable.

In Winnipeg, the average price of a home hovers around $300,000. Since the initial stress test was introduced in October last year, our market has seen a drop of 12 per cent in the sale of homes under $300,000. Clearly, it’s a result of the stress test on insured mortgages that almost exclusively impacts first-time buyers.

What’s ironic is that Ottawa announced over $11 billion in funding for affordable housing in the 2017 Federal Budget.

Those first-time buyers, who now cannot afford to buy a home, will continue to rent in an already over inflated rental market in Winnipeg with a vacancy rate of less than three per cent; thereby, putting more pressure on affordable housing in the rental market.

This latest stress test on uninsured mortgages is sure to have an effect on Winnipeg’s real estate market, and certainly on move-up buyers. A home buyer who qualifies to purchase a $400,000 home today will have their buying power reduced by 20 per cent in the New Year. That same buyer in 2018 will only be able to afford a $320,000 home.

I would suggest that most move-up buyers would not see any merit in that reduction in buying power and will choose not to move.

What kind of potential impact will this stress test have on the local and national economy? Consider this: according to the Canadian Real Estate Association, in 2017 each home sale will generate almost $63,000 in spin-off spending. This translates to one job for every three transactions. Home sales and purchases in 2017 will add an estimated $31.8 billion in spin-off consumer spending to the economy and create more than 221,000 jobs.

The die is cast and the changes will be upon us in the new year. It remains to be seen what trends will develop in the Winnipeg real estate market.

In my opinion, one thing is quite likely — there will be a flurry of activity in the next 60 days from home buyers looking to purchase their home before the stress test is put in place on January 1. I expect a robust real estate market during a traditionally slower time of year. It is also expected that there will be no further increases in the Bank of Canada rate until Ottawa can determine the fallout from the latest stress test and the uncertainty over NAFTA.

There’s lots to consider moving forward. It will be interesting to see what impact these latest changes will have on the cooling off of the offending real estate markets in Canada.

Recently, I was in Ottawa as part of the Canadian Real Estate Association team for PAC Days, advocating for WinnipegREALTORS® and meeting with Members of Parliament to discuss real estate in Canada. I must say they were a subdued group on the hill. The government certainly has its hands full with changing tax laws and NAFTA.

These are changing times in the real estate industry, but after 30 years as a Realtor, I can say with certainty that it has always been a changing landscape.

I believe homeownership in Winnipeg remains affordable for young people and is a solid, long-term investment for all.

Purchasing a home is likely the biggest single investment one will ever make in their lifetime, so all aspects involved should be taken into consideration.

(Brenden Morgan is a Realtor and

a member of WinnipegREALTORS®

Political Action Committee.)