—The Mortgage Report: June 29—
- Stress Test Fix Overdue: Ottawa was sensible to pause the mortgage stress test changes “given the marketplace uncertainty in March,” says Paul Taylor, President and CEO, Mortgage Professionals Canada (MPC). “However, as we begin to open businesses again, and as economists are generally expecting a housing price downturn, now is the time for OSFI and Finance to consider implementation of the new test.” He explains that: “Unsurprisingly to many in the industry, the large reductions in the Bank of Canada’s overnight rate are still not reflected in the Bank’s posted 5-year rate, and [at 250 basis points], this dislocation is well above [normal]….There is also no expectation of any material increase in interest rates for the foreseeable future.” As a result, Taylor says, “Continuing to pause the previously announced changes leaves in place an unnecessarily punitive, pro-cyclical and suppressive minimum qualification rate that is more than double the expected interest rate most borrowers would pay. To help minimize the expected [home] value reductions and erosion of millions of Canadians’ net worth, the announced change should be implemented before the mortgage deferral programs expire.”
- “The Worst is Yet to Come”: So says the World Health Organization about the pandemic. And it’s our neighbour we have to worry about most.
Witness the daily COVID cases in Canada:
And the daily COVID cases in the U.S.:
Notwithstanding Canada’s relative success in containment, this unmistakable resurgence in U.S. cases—despite being linked to more widespread testing—is rate bearish for both countries.
- CMHC’s July 1 Rule Changes: Q&A on the New Mortgage Rules, via Rates.ca.
It seems like Canadian urban centers really haven’t seen any sort of price decrease at all. Wouldn’t lowering the stress test rate add even more fuel to the fire? Should we not wait until the fall to see if housing decline predictions bear out?
Canada is more than “urban centres.” We also have to consider the rest of the country, much of which is struggling.
OSFI admitted they botched the stress test formula saying it is “not working as intended.” No one can predict home values so we shouldn’t even try. If it’s broken, it should be fixed. Period. A little extra housing activity will help us recover sooner and save jobs.
Activity is already heating up in city cores and out all the while affordability at lows and debts at record highs.
RE narrative is that things already back to 2016-2017 prices and sentiment. Yet somehow, things are so very dire and we should loosen policies. Give. Me. A. Break.
You are missing the point. The stress test never should have had a benchmark rate that is unrealistic and manipulated by banks. OSFI admitted they got it wrong and said they have to correct it. Real estate activity has nothing to do with this.
“is rate bearish for both countries.”
This stood out for me. It’s true that despite all of our efforts and precautions on this side of the border to facilitate opening things up, so much of our economy is still dependent on the U.S. and its economy normalizing. And as the graphs above illustrate…we shouldn’t be holding our collective breath that that will be happening anytime soon.
The decrease in interest rates really pumped the housing market at pre 2008 level, people fail to understand that falling prices = falling revenue = decreased spending. I’m ready to wait in February for the motivated sellers, those 2020 tax returns are going to suck for a lot of people out there.