A Bank of Canada study suggests that Ottawa's mortgage stress-test rules are only responsible for a small part of the drop in home sales.The federal government’s mortgage stress-test rules are responsible for only a small part of the drop in home sales in Canada in the past two years, while high prices and the bursting market bubbles in Toronto and Vancouver have played the biggest role in curtailing sales, according to a Bank of Canada study.
Those groups have joined other voices in the real estate sector in calling for modifications to the stress test, which they say is blocking too many people from being able to qualify for a mortgage. In a report last week, Benjamin Tal, deputy chief economist at CIBC World Markets Inc.
Comparing the first quarter of 2015 with the fourth quarter of 2018, they estimated the rising costs of buying a home – or a “deterioration in housing affordability” – would have led to a reduction in home resales of 46,000 units based on market fundamentals. About 40 per cent of that drop would be due to higher mortgage rates and the rest to home-price growth.
The report said the difference is explained in large part to a disappearance of the “froth” in housing markets in the Greater Vancouver Area and Greater Toronto Area. The pullback was not caused by economic fundamentals or mortgage policy measures, but by lower consumer confidence about prices increasing.
Home sales are now experiencing “the kind of under-shooting that you would see as froth works its way off,” she said.
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