Morneau unveils mortgage stress test changes
The federal government announced Tuesday it is easing the “stress test” for insured mortgages, which some experts say will loosen the barrier to entry — even if only somewhat — into Canada’s overheated housing markets. The changes, which take effect April 6, will slightly decrease the threshold, or the minimum rate, a customer has to pay to qualify for insured mortgages, while increasing the amount the customer can borrow.
Below, economists and housing experts weigh in on how these changes may impact the Canadian economy, the highly-indebted consumer, the Bank of Canada’s future decision on interest rates and, of course, the prospective homebuyer.
John Pasalis, president, Realosophy Realty
In an interview with BNN Bloomberg on Wednesday:
“This is really just going to impact people who are buying at the absolute margin. And what we see is a lot of people don’t always end up buying what they qualify for. Sometimes they end up buying a little bit less or put a bigger down payment. So it’s probably going to have some impact but not as much as some people might think.”
Robert McLister, founder, RateSpy.com
In an email to BNN Bloomberg on Wednesday:
“By unhinging the stress test from [the big banks’] posted rates, regulators are fixing a glaring policy error. There’s no way six banks should have been allowed to dictate how easy it is to get approved for a mortgage.
Barring some unexpected shock or rate spike this spring (both seemingly unlikely), this new, easier stress test should be music to the ears of home sellers. Prices in hot markets will likely surge further, leaving homebuyers with little relief until sellers deem the increases sufficient enough to put more homes on the market.
As home values and loan-to-income ratios climb, don’t discount regulators’ will to maintain financial stability. We could very well see further credit policy tightening within a year or so if home values boil over.”
Andrew Husby, economist, Bloomberg Economics
In his appearance on BNN Bloomberg’s The Open on Wednesday:
“I think at the moment, the way to think about it is there are a whole host of factors that go into home prices. There’s supply, which is tight, there are low rates, which obviously impacts affordability, and now you have this adjustment to mortgage rules. On balance, all of these do tend to push up prices.”
Stephen Brown, senior Canada economist, Capital Economics
In an article for Capital Economics posted Wednesday:
“The proposed change to the mortgage stress tests could put even more upward pressure on house prices over the next 12 months, by increasing the amount that buyers can borrow by more than [three per cent]. With the Bank of Canada already concerned about the impact that the recent loosening of financial conditions is having on the housing market, this is another reason to believe that it will leave its policy rate unchanged.”
Robert Kavcic, senior economist, BMO Capital Markets
In a note to clients Tuesday:
“Will this have an impact on the market? At least a modest one to start. First, keep in mind that Vancouver, Toronto, Ottawa, Montreal are all either hot or getting hotter, and these changes will hit right as the spring selling season gets underway.
Arguably, the impact will be as much on prices as unit demand. For example, someone who was right up against the limit before these rules were brought in might have just moved down the price ladder until they qualified. We could see the opposite this spring, especially if the measure is extended to the uninsured space.”
Evan Siddall, president and CEO, Canada Mortgage and Housing Corporation
In a Twitter post Wednesday:
Kyle Dahms, economist, and Matthieu Arseneau, deputy chief economist, National Bank of Canada
In a note to clients Tuesday:
“This should add further fuel to a vigorous housing market which is already supported by the recent decline in mortgage rates and a vibrant labour market.”
Colin Stewart, CEO and portfolio manager, JC Clark Ltd.
During his guest-host appearance on BNN Bloomberg’s The Street on Wednesday:
“We don’t see a lot of evidence of huge stress in the Canadian consumer but [that is] definitely something to watch. And we have to remember, this is just an easing of the stress test. There still will be a stress test, it’s just loosening the rules a little bit relative to where they were.”
Elaine Taylor, chair, Mortgage Professionals Canada
In a news conference Wednesday:
“We are encouraged by these announcements and happy to see increased coordination of timing between the Ministry of Finance and OSFI and expected effective dates of these changes. That said, our association believes a 200-basis point test is too high, especially given our current economic climate and general expectations of future interests rates. Uncoupling the stress test from the Bank of Canada rate is the right public policy move but a reduction in the percentage test itself is also needed.”