Mortgage stress test continues to impact Sask. real estate market

The mortgage stress test continues to impact the Saskatchewan housing market despite increases in market activity, the Association of Saskatchewan Realtors (ASR) said.

Regina and Saskatoon both saw double-digit sales increase in April compared to a year ago, said ASR CEO Bill Madder, but he cautioned there are still signs of the damaging effects of the mortgage stress test.

The Canadian Real Estate Association (CREA) estimates a home buyer in Saskatoon with a 20 per cent down payment would have to come up with an additional $48,000 to qualify for a single-family home with a benchmark price of $306,900 due to the stress test, or lower their target price to $259,000.

It is the same in Regina, where a home buyer would have to come up with an extra $43,000 to qualify for a $274,000 home with a 20 per cent down payment, or lower their target to $231,000, the CREA said.

The Canadian Home Builder’s Association estimates over 150,000 buyers have been taken out of the market due to the mortgage stress test, with over half being first-time buyers.

WATCH (December 2018): Mortgage stress test stressing Sask. homebuilders

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Those buyers need to be back in the market, Madder said.

“Until the significant number of buyers that have been taken out of the market are able to return, we will not know the true strength of the recovery,” Madder said in a statement.

“It is also important to note that 2018 was a difficult year and while it is nice to see things looking better, there is still a long way to get back to five- and 10-year averages.”

The ASR is calling for changes to be made to the mortgage stress test to take regional factors into consideration.

“We feel that a return to a healthy, balanced market could be achieved by making adjustments to the regulations, which would allow some of the buyers who have unnecessarily been taken out of the market to get back in,” Madder said.

The changes are not only impacting potential home buyers, the ASR said, but existing homeowners.

Reduced prices mean current homeowners may have to put off making important decisions like upgrading to larger homes, renovating, or helping a child go to college, according to the ASR.

The ASR is calling for three revisions to the mortgage rules.

The first is for a regional approach in applying the mortgage stress test to take into account economic variances.

The second is adjusting the 200 basis points spread based on regional economic factors, and the third is to reintroduce 30-year mortgages.

Under the mortgage stress test, federally regulated financial institutions are required to vet applicants for uninsured mortgages by using a minimum qualifying rate equal to the greater of the Bank of Canada’s five-year benchmark rate or their contractual rate plus 2 percentage points.

The rules effectively reduce the size of the mortgage Canadians will be able to take on given a certain down payment and income.

– With files from Erica Alini