Mortgage Stress Test

Yesterday the Toronto Real Estate Board has asked the government to look at whether the mortgage stress test is still necessary.
The stress test was brought out last year to protect buyers from rising interest rates but have impacted the ability for some to qualify for mortgages, especially first time home buyers. Last winter, Toronto millennials polled said that 95% of them worried that they would be unable to afford to purchase a home. TREB reports that the stress test means that homebuyers must qualify for a mortgage payment almost $700 more than they would actually pay.
Evan Siddall, head of Canada Mortgage and Housing Corporation (CM-HC), believes the stress test is bitter medicine that is working fine. He thinks the critics are “short-sighted” and remarked on a recent drop in Toronto home prices.
Carolyn Rogers, the Assistant Superintendent at Office of the Superintendent of Financial Institutions recently clarified that while some assumed the stress test was “designed to target escalating home prices” that was not the case. “It was designed to target mortgage underwriting standards.”, to provide a safety buffer so borrowers do not “stretch their borrowing capacity to its maximum.” This looks to have been successful, a recent report by the Bank of Canada revealed that the “number of new highly indebted borrowers has fallen” and the quality of credit has improved while the quantity of credit being offered has declined significantly.
Listings are down this year so far but prices continue to climb. TREB forecasts that 83,000 sales will be reported through MLS, up 7.2% from 2018. They also expect the average selling price for the year in the GTA will increase to $820,000 — close to the peak reached in 2017. Condos will be the hottest market with homebuyers trying to get into the market, while there will be an opportunity to buy detached properties at lower than average growth rates. Rentals are also expected to have a sharp rise.
Buyers who got out of the market last year after the stress test slowed them down are expected to return this spring with reduced expectations so expect a busy season, especially in the condo and semi-detached markets.