Impact of new mortgage rules uncertain

More rigorous stress test introduced for new mortgages at beginning of year

Alberta’s big city realtor associations are predicting new mortgage rules could shave up to 1.5 per cent off average house prices.

In Central Alberta’s smaller market, a similar forecast has not been made but realtors are watching closely.

“It’s hard to tell what will happen here in Central Alberta,” said Danielle Davies, outgoing president of the Central Alberta Realtors Association, which represents more than 500 area realtors. “The actual rules only came into effect on January.”

Under the new rules, even home buyers who don’t require mortgage insurance because they have a 20 per cent down payment, will have to prove they can afford their mortgage if interest rates rise above Bank of Canada’s five-year benchmark rate or two per cent or more higher than their existing mortgage rate, whichever is higher.

For instance, if a homeowner lines up a three per cent mortgage they must be able to prove they can afford five per cent not matter how much their down payment.

It’s called a stress test and the federal government has made it more rigorous out of concern for rising debt levels among Canadians. A similar tweak was made in January 2016.

Central Alberta Realtors Association and its provincial counterparts have raised concerns that the stress test changes could cool Alberta’s housing market just as it recovers from a lengthy downturn.

“The second set of (stress test) rules hit a little bit harder because we’re already trying to recover,” Davies said.

“I think it’s just one more thing to add to the pot to put on people’s minds as they’re moving forward into the new year.”

Davies said the realtors association will continue to raise its concerns about further mortgage changes. The association’s political action committee plans to work on a game plan, which will likely involve recruiting municipal and other government support to ensure their message reaches the right ears.

Despite the stress test headwinds, area realtors remain optimistic 2018 will prove a better year than 2017.

“We’re really looking forward to seeing the improvements in the economy.”

Nationwide, the Canadian Real Estate Association is projecting a 5.3 per cent drop in home sales to 486,600 units, with most of that attributed to falling sales in Ontario.

Mortgage stress test changes are expected to be felt most strongly in the red-hot housing markets of Toronto and Vancouver, but will be felt in markets throughout the country, says the association in its forecast released last month.

“Indeed, new mortgage rules are expected to lower 2018 sales in all provinces except Quebec and Newfoundland and Labrador.”

Average prices in Alberta, Saskatchewan and Newfoundland and Labrador are “forecast to either hold steady or edge back slightly in 2018,” a trend similar to 2017.

In Alberta, 2017 sales were projected to hit 56,200, up 7.7 per cent. This year, projected sales are 54,600 units, down 2.8 per cent.



pcowley@reddeeradvocate.com

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