The mortgage stress test began with the best of intentions. In October 2016, interest rates had been hovering at historic lows for the better part of a decade. Real estate prices were rising, and household debt grew and grew. Very real concerns arose about Canadians biting off more mortgage than they could chew, should interest rates increase, even a fraction of a percentage point.
The Office of the Superintendent of Financial Institutions (OSFI) implemented the mortgage stress test to borrowers with a down payment of less than 20 per cent of the purchase price. The initiative was then expanded to include all mortgages as of January 2018.
A year later, it appears that the stress test has successfully put the brakes on the unprecedented price growth occurring in some of Canada’s largest housing markets. Balance has returned with sustainable, single-digit price growth projected across the country. This begs the question – is the stress test still necessary? For first-time homebuyers who are most burdened by the mortgage stress test, the answer is “no.”
I am 100 per cent supportive of measures that help ensure Canadians are being responsible with the amount of debt they take on – but let’s be realistic. The economy has started to soften, and economists predict the Bank of Canada will hold interest rates through 2020. Any movement, they say, will be downward – not up. In light of this new reality, requiring homebuyers to qualify at a higher rate is simply unnecessary. Particularly with the housing affordability crisis in many of Canada’s largest urban centres, young first-time buyers need a break and they need it now.
Beyond the first-time buyers who have been hardest hit by the stress test, there’s a domino effect happening. The rental market is in a frenzy, since those who no longer qualify for a mortgage are forced to rent. On the flip side, those who currently own a starter home with hopes of selling and moving up the property ladder, are unable to find buyers, since 10 per cent of buyers no longer qualify for a mortgage.
Let’s look at some more facts. Canadian real estate continues to be one of the safest and most reliable financial investments – and the desire for home ownership here is strong. Recent research conducted by Leger on behalf of RE/MAX shows that there are two main reasons Canadian Millennials want to own a home: it’s a good investment (30%) and it’s a good plan for their future (41%). They’re right.
OFSI mortgage stress test is currently a major obstacle in what’s become an elusive dream.
The Canadian government needs to incentivise homebuyers in Canada rather than penalize them – which is what the mortgage stress test is doing.
No one is suggesting that Canadians should purchase homes they cannot afford, but the stress test in its current form isn’t solving the housing affordability issues in our country.
As we look toward October’s election, it’s even more crucial to consider how government intervention will help or hinder Canada’s housing market for the remainder of 2019 and beyond. Certainly, housing is one of the most important issues facing Canada. Between the Liberals’ renewed focus on making housing more affordable for Millennials, the NDP’s recently defeated proposed measures to increase supply with 500,000 new affordable units over the next decade, and the Conservatives sympathizing with Canadians about a so-called housing crisis – it’s clear that they’re just as uncertain about the market as Canadian homebuyers are. I propose that this quandary around housing affordability needs to be addressed head on, rather than encouraging a ‘wait and see’ approach.
The Canadian government needs to incentivise homebuyers in Canada rather than penalize them. Other problems, such as affordability, are starting to manifest in negative and preventable ways.
Let’s not wait to make some crucial changes.