Money: Is the mortgage stress test making Toronto’s housing crisis worse? - PressFrom - Canada
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MoneyIs the mortgage stress test making Toronto’s housing crisis worse?

18:00  10 june  2019
18:00  10 june  2019 Source:   thestar.com

Metro Vancouver housing sales remain sluggish in May

Metro Vancouver housing sales remain sluggish in May Housing sales in Greater Vancouver were 22.9 per cent lower last month than the 10-year average and the lowest for May since 2000, according to a report by the Real Estate Board of Greater Vancouver (REBGV) published Tuesday. The real estate board says a total of 2,638 homes were sold in May 2019, a 6.9 per cent drop from the 2,833 homes sold in May 2018. However, sales were up 44.2 per cent from the 1,829 homes sold in April. © Sean Kilpatrick/The Canadian Press The Real Estate Board of Greater Vancouver says tougher mortgage rules and a federal stress test are behind reduced demand in the housing market.

Canada’ s mortgage stress test must be maintained because it is helping prevent a potential financial crisis from a “debt-fuelled real estate boom," the head of the national housing “The single largest risk to an insured mortgage is the homeowner’ s unemployment – not higher interest rates,” he said.

If housing affordability is destined to be an election issue in 2019, Canada’ s political parties are already fine tuning their arguments for how they will fix the problem. In a debate in the House of Commons on Thursday

Is the mortgage stress test making Toronto’s housing crisis worse?© Chris So Our overall debt level hit a record high late last year — we now collectively owe 178 per cent of our disposable income. We may be mortgaged to the hilt, but Canada’s loan default rate is still tiny: Just 0.3 per cent. We’ll do anything to ensure we don’t miss those payments.

We juggle credit cards and car loans and postpone paying our home equity lines of credit, but that doesn’t help with our overall debt level, which hit a record high at the end of last year — we now collectively owe 178 per cent of our disposable income.

That makes many households vulnerable to disaster if someone loses a job or interest rates climb. It also puts Canada’s future prosperity at risk.

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Mortgage stress tests are coming in 2018 and we want you to be prepared. Here' s how you can What is the New Mortgage “ Stress Test ”? Originally, the test only applied to people applying for high-ratio mortgages , meaning those who weren’t making more than a 20% down payment, and

Some economists worry that the mortgage stress test , combined with rising interest rates, will push the housing market into an all-out downturn. The one thing that could be more "ridiculously dangerous" to Canada' s economy than the new mortgage rules would be the lack of them.

That’s why Canada’s bank regulator introduced a stress test 18 months ago that makes it harder for cash-strapped home buyers to qualify for a mortgage — and why, in an unusually blunt letter to the Standing Committee on Finance last month, Canada Mortgage and Housing Corp. CEO Evan Siddall vigorously defended its role in protecting us against dangerous debt levels related to our homes.

But that mortgage lending test has also been blamed for a slump in the Toronto region housing market, with builders, lenders and realtors accusing it of needlessly shutting out first-time buyers and handcuffing move-up consumers to their current bank. The trickle-down effect, they suggest, is stunting the housing supply at a time when Ontario, at least, is desperately short.

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The subprime mortgage crisis was a result of too much borrowing and flawed financial modeling, largely based on the assumption that home prices only go up. They had plenty of equity, so why let it sit in the house ? Banks offered easy access to money before the mortgage crisis emerged.

The United States subprime mortgage crisis was a nationwide financial crisis , occurring between 2007 and 2010, that contributed to the U. S . recession of December 2007 – June 2009. It was triggered by a large decline in home prices after the collapse of a housing bubble

It’s an important question: Is the stress test smart government policy that’s helping to bring a frothy housing market under control — perhaps even preventing a devastating housing crash? Or is it too heavy-handed, dampening the economy and making it even harder for regular Canadians to buy a home?

Housing will almost certainly be a central issue in the October federal election and the Toronto Real Estate Board (TREB) will be watching where the parties stand on lending policy, mortgage products and amortization, said the board’s chief market analyst Jason Mercer.

He is among those who wonder if the stress test might be too rigid.

“If you’re at the top of the economic cycle and you don’t feel that you’re going to see too much more in the way of interest rate increases, is it prudent to continue to have a static 2 percentage point spread that you’re stress testing someone against?” said Mercer.

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The Mortgage Housing Crisis The Smiths entered the front entranceway of a matured colonial home on Main St. They immediately Like the Smith couple for example, they bought a home that was way over their budget but they felt it was the perfect house to suit their fantasy of the all-American dream

The mortgage stress test was designed to ensure borrowers and lenders would be okay in a world of higher interest rates, but has become a scapegoat What really worries real estate agents, mortgage brokers, home builders and developers is the cooling housing market. The boom of recent years has

Related video: Real estate investing pro tips that could save you thousands [Provided by CityLine]

Suggestions from the broader industry for making the test more flexible include tying it to interest rates, confining it only to first-time buyers or applying it to consumers who carry inordinate debt loads.

Siddall’s letter relegates some of the stress test criticism to the “plain self-interest” of groups such as the Canadian Home Builders Association, Mortgage Professionals Canada and the Ontario Real Estate Association, which have all argued for changes.

He is right, said John Andrew of Queen’s University.

“The stress test is a scapegoat for a lot of people in the industry,” said the real estate professor.

Alarmed by rising house prices, particularly in cities, and a mounting dread that consumers weren’t fully appreciating the risk of potential interest hikes, Andrew was calling for more rigorous lending criteria before bank regulator, the Office of the Superintendent of Financial Institutions (OSFI), stepped in.

Toronto Is The Fastest-Growing City In U.S. And Canada, And That’s Not Good

Toronto Is The Fastest-Growing City In U.S. And Canada, And That’s Not Good Torontonians could find themselves “doubling up” on housing with friends or relatives in the coming years as the city’s breakneck population growth outstrips the supply of new housing, an urban planning expert is warning. In an analysis published online this week, researchers Frank Clayton and Eva Shi of Ryerson University’s Centre for Urban Research and Land Development found that Toronto is the fastest-growing city in the U.S. or Canada, and by a long shot. The city added more than 77,000 net new residents in the year ending in July, 2018, more than three times as many people as the next municipality, Phoenix, Ariz.

Getting a mortgage can be tough, especially with the price of houses these days. But over the past year-and-a-half or so, borrowers have had

But that isn’t making much of a difference for many homebuyers. On the one hand, if you take out Toronto and Vancouver, the national average home price slipped just 2 per cent in the last 12 months — not enough to make up for the fact that READ MORE: Could you pass the mortgage stress test ?

Its amendment to its B-20 Guidelines was designed to strengthen the underwriting standards of the financial institutions it governs, including Canada’s big banks. It means consumers — even those with a down payment of 20 per cent or more — have to qualify for a mortgage at a rate 2 per cent higher than they will actually pay the bank or 2 percentage points higher than the Bank of Canada’s five-year rate.

Andrew thinks the 2 per cent borrowing cushion is reasonable and he’s not buying the argument that the stress test is solving a default problem that Canada doesn’t have.

“(Mortgage) default rates are incredibly low because we’ve always had a culture of very responsible lending. I would argue the stress test was the next necessary step to ensure that continues,” he said.

The real estate industry doesn’t like the stress test, he said, because it depends on the commissions of buyers who want to move to larger houses — but now many are avoiding the stress test by borrowing against their homes to renovate rather than move. Mortgage renewals aren’t stress tested unless the borrower switches to another regulated lender.

The B-20 amendment is not the only factor in dampening demand for new construction housing where sales hit a 20-year low last year. But it is a contributor, said Cheryl Shindruk, chair of the Building and Land Development Association (BILD), which represents Toronto-area homebuilders. And that has an indirect impact on supply.

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If you want to stress test your finances, ask yourself what would happen if you had to pay 0 a The GDS is the percentage of your pre-tax income needed to pay your housing costs. It’ s up to you to make sure you’d be able to keep up those credit card payments after getting a new mortgage .

*Creating a “ stress test ” for insured mortgages , ie. those under ,000,000. – All those changes, and nothing cooled the market. Guideline B-20 now requires the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada or the

“Builders will only build what they can sell. If the demand is not there, then the building slows down,” she said.

“That doesn’t mean the demand has gone away. The demand is there but it isn’t being expressed in the marketplace,” said Shindruk, who notes the Canadian Home Builders Association is reporting a 33 per cent decline in first-time homebuyer activity.

At Geranium Homes, where she is an executive vice-president, Shindruk says stress testing has shut out previously qualified buyers — consumers who had already owned a home and had secure employment.

“While we understand that first-time home buyers, and particularly millennials and new Canadians, seem to be the most impacted by it, it’s definitely affecting buyers across the centre,” she said.

BILD isn’t pushing for the elimination of the stress test, but it would like the test to be more dynamic by tying it to interest rates or applying it only in cases of excessive debt levels, said Shindruk.

“The other thing that would be helpful would be to allow a 30-year amortization period,” she said.

Toronto realtor John Pasalis dismisses the idea that declines in single-family home construction are related solely to lending qualifications. There were other factors, including too much speculation in some parts of the Toronto region, particularly in the 905-area communities around the city.

“Lowrise new construction sales tanked in 2017 and 2018 because the housing market in the 905 tanked. Prices fell 25 or 30 per cent but builders didn’t want to lower their prices that much — or couldn’t — because they pre-sold a lot,” he said.

Canadians took on less debt in first quarter of 2019 — but total amount they owe is still growing

Canadians took on less debt in first quarter of 2019 — but total amount they owe is still growing While Canadians are finally easing up on their credit debt, their mortgage commitments continue to push overall debt levels up. That's one of the main takeaways from a Statistics Canada report on the national balance sheet released Thursday. The data agency reported that total credit market debt — which includes all the mortgages, credit cards and other forms of personal debt that individuals owe — came in at $2,230.6 billion in the first quarter, or just over $2.3 trillion. That's an increase of 0.2 per cent from the previous quarter, the slowest pace of growth since 2011.

That stress test has prompted criticism it’ s making it more difficult for Canadians — especially younger The mortgage stress test was introduced alongside new lending guidelines published by the OSFI last Toronto and Vancouver posted their worst year for sales in at least a decade last year.

According to the Toronto ' s Housing and Homelessness Services, while only 1 per cent of Toronto ' s population self-identifies as Indigenous, Indigenous people make up 33 per cent of the outdoor homeless population. Then things took a turn for the worse after they learned she was Indigenous.

Pasalis says builders are behaving like stubborn sellers, who simply don’t want to reduce their prices. They will wait until demand pushes prices higher to increase their profits.

But he also disagrees with Siddall’s public assertion of self-interest among industry associations. The arguments in favour of protecting against excessive debt should stand on their own merits, said Pasalis. After all, everyone has an interest.

Pre-stress test, CMHC was insuring a lot of consumers who were buying investment properties, he said.

“They were insuring people with $1.5 million homes who were refinancing their mortgages to take out more debt. They only stopped doing that in October 2016. That’s what fuelled the bubble,” said Pasalis.

He argues that after more than a year, consumers have adjusted to the stress test. Removing it now would only add heat to an already competitive market.

Besides, Toronto region resale home prices have risen moderately every month so far this year. Sales rose in the double digits in both April and May, according to TREB, although it qualifies those year-over-year numbers as coming off a 15-year low in 2018. Still, there’s no doubt that buyers are stepping back into the market, said Mercer.

Nevertheless, the role of the stress test can’t be underestimated when it comes to the pace of recovery from the real estate bubble that popped almost immediately after the former Ontario Liberal government launched its Fair Housing Plan in April 2017.

“It’s tough to argue the stress test hasn’t been one of the largest, if not the largest factors affecting demand in the GTA,” said Mercer.

Tess Kalinowski is a Toronto-based reporter covering real estate. Follow her on Twitter: @tesskalinowski

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