Ottawa House for Sale
Home sales are recovering from the stress test

It’s no secret that the federal mortgage stress test, put in place by Canada’s banking regulator in January 2018, took a considerable bite out housing markets across the nation. January 14, 2020

The test requires insured mortgage borrowers to prove they could qualify for a mortgage at the Bank of Canada’s five-year benchmark rate – currently 5.19 per cent – while non-insured borrowers must qualify either at this rate or their contract rate plus two per cent, whichever is higher.

As a result, fewer buyers found themselves able to get A-level home financing, forcing them to either downsize their home purchase, seek alternative lending options, or sit out the market altogether. In all, Canada Mortgage and Housing Corp. reported the stress test dampened new mortgage lending to the slowest rate of growth in 25 years in 2018, at a pace not seen since the 2008 recession.

However, home buyers began to overcome these adverse effects in 2019; coupled with historically low mortgage rates, that led to a continued improvement in sales in the Greater Toronto and Vancouver areas, as well as a number of secondary markets.

Both CREA and CMHC are forecasting sales and price growth to continue steadily throughout 2020. The national association has called for a total of 530,000 transactions this year, an annual increase of 8.9 per cent, with the national average price climbing 6.2 per cent to $531,000.