OSFI could have been more aggressive in their qualifying rate: Mortgage expert
Canadian homebuyers will face a tougher mortgage stress test starting next week, one that will reduce their buying power and possibly contribute to a cooling of the market that’s already in progress.
And while new regulations often create a rush of buyers looking to get in ahead of a rule change, industry observers say the tighter stress test isn’t setting off a crush of activity.
“Most people in the industry expected to see a very frenzied couple of months before June 1, but we haven't seen that,” said John Pasalis, president of Realosophy Realty, via email.
“There are certainly some buyers who are eager to buy before the rule changes, but the mood in the market is definitely far calmer than what we expected.”
The new minimum qualifying rate of 5.25 percent will sap the average household’s buying power by about four per cent, or a little more, according to Rates.ca. If you qualify for a $500,000 mortgage today, that amount will be reduced to around $479,000 on June 1.
That said, it’s an incremental hurdle for homebuyers who were already facing a stringent stress test with the current minimum qualifying rate of 4.79 per cent.
“It piggybacks an already very high qualifying rate with a modest increase,” said BMO senior economist Robert Kavcic.
“This change is a lot less significant than the one in 2018, so there might not be as big a rush.”
That tightening of mortgage rules in 2018 did set off a rush to buy, given that homebuyers saw their purchasing power reduced by some 20 per cent in that round of changes.
The market reaction once this round of tightening is in place is also of great interest to homebuyers, with many finding themselves priced out as cheap money and high demand sent prices soaring during the pandemic.
Rob McLister, mortgage editor at Rates.ca, said he’s been talking to lenders and brokers and is hearing stories of some buyers holding back in hopes of a “post-rule change housing slowdown.”
“There's no question that (fear of missing out) would have been greater this summer, were it not for the buying-power reduction of a 46-basis-point higher stress test rate,” said McLister.
“Will this be enough to let the air out of the housing balloon? Perhaps, but probably not immediately.”
The June 1 tightening of the stress test comes with housing markets already showing signs of calming down. Earlier this month, the Canadian Real Estate Association reported the number of homes changing hands fell 12.5 per cent from March to April.
“The housing market has naturally been cooling down the past couple of months,” said Pasalis.
“I believe that the higher qualifying rate will further contribute to this trend, which should see the market move from what is still a tight seller's market to one that is a bit more balanced.”