Latest Impacts of the Stress Test

Here’s a quick summary of the latest findings which look at the impact of the stress test on home sales and the price of homes over the past year as well as the current state of awareness among customers.

Research from TD Economics estimated that the B-20 stress test resulted in 40,000 fewer homes sold over 2018. The report also showed that the test impacted the supply side, with few existing homes on the market and fewer new units in the pipeline. This has put more strain on an already tight rental supply as potential buyers were forced to continue renting.

The report further states that the B-20 rules contributed to bringing down housing activity to a more sustainable level. However, these developments should be monitored. There is scope to tweak the guidelines if there is a change in circumstances and/or housing markets undershoot expectations. The report suggests that if the B-20 test were to be removed, it would result in a rise in home sales by 15% by 2020, and prices to rise by 10%.

Mortgage Professionals Canada CEO Paul Taylor agreed that complete removal of the stress test would cause an increase in prices, however that is not what the association is currently advocating for. The proposal is to ease the stress test to 75 bps from the current 200 bps, which will help potential buyers who are finding it difficult to enter the housing market.

The Bank of Canada recently released a research into the effects of the stress test. The research stated that the new rules were only responsible for a small part of the fall in sales of homes. Instead the Bank of Canada claims that the major reason of the drop was deteriorating affordability in key markets in Ontario and BC.

In April, home sales in Vancouver continued to fall, reaching a 24-year low according the Real Estate Board of Greater Vancouver. Overall Sales were down nearly 29% from last year, while prices are down 8.5%. The benchmark price for all property has now fallen to approximately $1,008,400. This downwards trend is being driven by reduced demand rather than increased supply. The stress test has reduced the purchasing power of buyers by nearly 20%. This is causing people at the entry level side of the market to struggle in order to secure financing. This suppressed housing activity due to government policies not only reduces home sales, but also harms the job market, economic growth and creates pent-up demand.

Reach out to us for more information regarding the stress test and how we could help you qualify for a mortgage.