Stress tests pushing one in three homebuyers to forego home purchase: survey
Tougher mortgage stress testing rules are pushing some Canadian homebuyers to lower their expectations for a new home and others to opt out of buying altogether.
In a sign of the ongoing role government intervention is playing in the market, one in three Canadian homebuyers said they had decided to forego a home purchase in light of the new mortgage qualification rules that came into effect January 1, according to a new Re/Max survey conducted by Leger.
A quarter of buyers compromised on the size of their home, while 18 per cent made concessions on its location.
“It has definitely cut out the buying power of first time home buyers and prompted other consumers to rethink where and what they’re going to buy,” said Christopher Alexander, executive vice-president and regional director for Re/Max. “If you could afford a house at a certain price point and that became unattainable in the last 18 months, you’re probably looking at a condo. If you still want a house maybe you have to consider a different area.”
The new mortgage lending rules introduced by the Office of Superintendent of Financial Institutions (OSFI) require home buyers to prove that they can service their uninsured mortgage at the contractual rate plus two percentage points or the five-year benchmark rate published by the Bank of Canada.
They came on the heels of market-cooling measures — including a foreign buyers tax — unveiled by the Ontario government in April 2017.
Following these moves, sales volumes in the Toronto region slowed through the summer and fall and plummeted in the opening months of 2017 – particularly in comparison to the same period a year ago, when prices soared and bidding wars were commonplace.
The average residential sales price in the Greater Toronto Area was $753,747 in January and February, down 10 per cent from $834,144 a year earlier, according to the Re/Max Spring market trends report.
Meantime, prices in Vancouver rose to $1,051,513 in January and February up 11 per cent from $950,184 during the same period in 2017. And in Calgary, the average residential sale price was $481,775, up 1.4 per cent from $475,288 a year ago.
The OSFI stress test did not impact Western Canada’s major markets as much as other parts of the country, said Elton Ash, regional executive vice president at Re/Max of Western Canada. Nevertheless, a suite of new housing market interventions introduced by the B.C. government in February – including an increased foreign buyer’s tax and proposed speculation tax – have remained a concern for buyers, he said.
“In recent weeks, the speculation tax has actually made some buyers hold off on purchasing which may affect the housing market in the next few months,” Ash said.
Though supply remains low in many regions, demand remains strong and markets are expected to strengthen across much of the country as we head into the warmer months, Alexander said.
“Pockets of the GTA had incredible price run-ups last year that weren’t sustainable,” he said. “I still think we’ll finish the year flat and sales and prices will rise toward the end of May.”
Canadian housing starts dipped to 225,213 units in March compared with 231,026 in February, as construction of urban buildings like apartments and condominiums decreased, the Canada Mortgage and Housing Corp. said Tuesday.
Construction on these housing types fell 7.3 per cent to 144,578 units in March – a drop that was partially offset by a 9.5 per cent increase in single-detached urban starts to 63,659.
BMO senior economist Robert Kavcic said the results were “firmer than expected,” noting that the 12-month average of 221,000 units was just off the strongest pace since 2008. While apartment and condominium activity declined, it still outpaces the construction of single family homes by a two to one margin.
“Indeed, this just reinforces the key message that residential construction activity remains relentlessly strong and stable in Canada,” he said in a note to investors.
In the Greater Toronto Area and Greater Vancouver Area, developers are “basically putting up whatever they can…and the markets are gobbling it up,” he added.
• Email: npowell@nationalpost.com | Twitter: Naomi_Powell