The Dreaded Stress Test

stress test

Stress tests implemented by lenders has made it harder for people to purchase homes. It’s really hard to qualify for a home. Some people are getting half of what they were qualified at 1 year ago.


stress test


What’s Changing In The Stress Test?

A federal banking regulator defended on Tuesday a stress test for uninsured mortgages that has been criticized for making it harder than it should be for some Canadians to own a home.


“The stress test is, quite simply, a safety buffer that ensures a borrower doesn’t stretch their borrowing capacity to its maximum, and leave no room to absorb unforeseen events,” said Carolyn Rogers, assistant superintendent at the Office of the Superintendent of Financial Institutions.


“This is simply prudent. It’s prudent for the bank and it’s prudent for the borrower.” Said Rogers,


What Does This Stress Test Mean For Home Buyers:


A change in the stress test could be a great thing. It could potentially mean that you are able to afford a larger home or a home in a different area if some of the policies were lifted.


Currently, under the stress test, borrowers making a down payment of more than 20 per cent need to qualify at whichever is higher: the Bank of Canada’s five-year benchmark rate or the rate that’s on their contract plus 200 basis points. That’s really hard to do for some families so even a small change in the procedure would be helpful.


And a big problem with the stress test is that it completely ignores rising incomes. Borrowers’ ability to make interest payments in five years is based on incomes today. Most families see an increase in income year over year.


How Will This Affect The Real Estate Market:


The Canadian Real Estate Association also reported recently that national homes sales posted their fourth-straight monthly decline. In December, the same month that the head of the Building Industry and Land Development Association said they would continue to call on the federal government “to undo the negative effects of the outdated stress test on consumers’ ability to purchase homes.”


If stress test were to be lifted, slightly, we feel there would be another shift in the market. We feel there would be more movement on both the listing side and the purchasing side.


If the stress test was lifted/changed there could be a potential increase in housing construction. Without changing the stress test there could be the potential for even greater problems with low supply and housing markets in saturated cities.


When Will This Happen?


There is no set date, it is currently just speculative information  The rising cost of homeownership in Canada and its accompanying threat to the economy is a problem. This problem is under constant scrutiny in the press.


As always, if you need help navigating the real estate market we are here to help.


Gregg Bamford and Ryan Bamford

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