Mortgage stress test rules

[MoneyGuy]

I’m curious what folks, including mortgage brokers and realtors such as Travis, think about the mortgage stress test rules? I’m a financial planner and I think that the rules needed to be tightened up but maybe the regulators went too far.

I have realtor friends complaining about the impact on house sales. That industry is in the doldrums. One concern is the requirement to qualify based on the prevailing interest rate plus 2%, which has shut out some potential buyers. The previous rules made it too easy to buy and people would get in over their heads, and could be in big trouble if interest rates were to rise significantly.

[Hockey Fan #751]

I feel like it just isn't a good idea to purchase the most expensive house you can afford as it doesn't leave a lot of room in your budget for other things and puts you in peril if interest rates increase and squeeze you out so in that sense, the stress test is a good thing.

As a home owner, I'm not a fan of the fact that my house has dropped a fair bit in value since I bought it just last year (it's probably dropped about $30,000 based on the sale price of similar homes around me). It sucks because I have a job opportunity in another city but it's impossible to sell given the equity I have in the home at the moment.

[troutman]

Councillor wants local approach to mortgage rules over national 'stress test'

https://calgaryherald.com/news/local...al-stress-test

A notice of motion being presented this week which asks Ottawa and the province to consider the adoption of a regional approach to lending rules, over the current “mortgage stress test,” is earning some support among councillors.

The motion — being brought forth by Coun. George Chahal.

It [stress test] “was created to deal with the unstable real estate markets in Vancouver and Toronto where red flags have been raised in recent years regarding the combination of unsustainable price appreciation and high-debt ratios,” Chahal’s notice of motion states.

But he pointed to “unintended consequences” outside those cities, including the slowing down of Calgary’s real estate market. There was also a reduction in construction and development which led to fewer jobs, an overall drop in Calgary homeowners’ property valuations, and a lower GDP, the notice of motion states.

“If you’re attempting to apply a single rule across the board because of a few situations that may not apply across Canada, then certainly we should be able to look at it slightly different in this regard.”

United Conservative Party leader Jason Kenney said that if his party is elected this spring, he’d call on Ottawa to eliminate the stress test.

[afc wimbledon]

We continue to suffer the effects of foolishly low interest rates, wouldn't need any of this if interest rates were 5%

[Fuzz]

I think it's tough to look at Calgary and say sales slowdowns are a result of the stress test, and detangle it from everything else going on in the market over the past few years.

[Hockey Fan #751]

Originally Posted by afc wimbledon

We continue to suffer the effects of foolishly low interest rates, wouldn't need any of this if interest rates were 5%

Although if interest rates were 5% or higher, there would still be a real lull in the housing market. Probably even more so.

As an aside, how do people in Toronto and Vancouver even afford their homes? I make nearly six figures and under the current rules, the most expensive house I can afford is $450,000.

So in a city like Vancouver where there are virtually no homes under $1 million, what do you do?

[troutman]

https://calgaryherald.com/news/local...census-numbers

The 2018 civic census released Friday puts Calgary’s population at 1,267,344, an increase of 1.7 per cent, according to data covering a one-year period from April 2017 to April 2018.

The numbers continue a turnaround in migration levels after 2016’s mass exodus — in that year, a record 6,527 people packed up and left Calgary amid a deepening economic recession.

But Calgary experienced positive net migration of 11,588 during the past year, compared to a net migration of just 974 in 2017.

[OMG!WTF!]

Probably a few years too late and likely a bad move considering our economy. But it will take a few years to process that and then a few more years to react appropriately. So plus one for local solutions.

[afc wimbledon]

Originally Posted by Hockey Fan #751

Although if interest rates were 5% or higher, there would still be a real lull in the housing market. Probably even more so.

As an aside, how do people in Toronto and Vancouver even afford their homes? I make nearly six figures and under the current rules, the most expensive house I can afford is $450,000.

So in a city like Vancouver where there are virtually no homes under $1 million, what do you do?

There is nothing wrong with and it is healthy to have cyclical lulls in the housing market

[troutman]

Originally Posted by Hockey Fan #751

So in a city like Vancouver where there are virtually no homes under $1 million, what do you do?

Commute from Maple Ridge.

[MillerTime GFG]

I guess the best way to describe the changes the Government has put in place would be "killing a mosquito with a sledge hammer".

Yes, there were some issues that needed addressing, but they certainly did go too far. This was something that I, as well as the Mortgage Professionals of Canada (MPC) predicted from the very start. The Government of course did not consult MPC prior to implementing these rule changes.

I have heard rumours there could be some changes made as of March 19th, and the lead rumour is that they'll start allowing 30-year amortizations for first time buyers that are putting less than 20% down. Currently, 30 year ams are only allowed for those with more than 20% equity (not just first time buyers). I think this is a good start, but won't make a huge impact.

I said from the very beginning that the Stress Test was designed mainly to cool markets such as Toronto and Vancouver. With such a massive country and such different economies from province to province, their brush was far too wide. I don't know what it would look like, or how it would be done, but I would certainly be in favour of the stress test being either eliminated or reduced in certain provinces, such as AB. Ie - instead of qualifying at the Bank of Canada benchmark rate of 5.34%, perhaps in AB it would half a percent lower. Or for conventional mortgages, contract rate plus 1% as opposed to the contract + 2% it currently is.

[_Q_]

Originally Posted by afc wimbledon

There is nothing wrong with and it is healthy to have cyclical lulls in the housing market

Yeah, I just hate how most politicians seem to think the market is only "healthy" when housing prices are constantly increasing. Keep the stress tests in place, price people out of the market and allow wages to catch up to housing prices over a few years.

[scotty2hotty]

Originally Posted by troutman

Commute from Maple Ridge.

Unfortunately, you can't buy a house for $450,000 in Maple Ridge either.

[GGG]

Access to cheap money to buy housing just increases the proportion of money people spend on housing so in general making a mortgage less accessible and reducing overal housing price and % of money spent on housing overtime is a good public policy.

This is especially clever as simple increases to interest don’t really affect the total amount of money spent just shift the balance between the interest payment and the capital payment. So this puts owners at risk due interest changes increasing their payments while at the same time decreasing the asset value.

By making the stress test tougher you decrease the total pool of money available to purchase houses which given constant demand would lower prices. The risk is that it begins to restrict supply. However so long as construction costs are being covered and it’s just land acquisition costs that are pressured lower supply should hold up pretty well

The problem is that this penalizes all existing homeowners in favour of future owners so if we are doin it we need to do it quick before the boomers sell their homes. (Might already be too late)

I think another thing to look Would be to change the stress test into a curve instead of a linear line of x% of income. Your expenses don’t increase linerly with income so you should be allowed a much lower percentage of mortgage on your 1st 50k of income than the 2nd 50k of income.

[Regorium]

I think that Calgary didn't need it. It was definitely needed in Toronto and Vancouver to temper those markets, but it just kicked us while we were down.

[Cecil Terwilliger]

The stress test should probably be more like document rate plus 1% or based on a more reasonable benchmark, otherwise it is fine and totally necessary.

The idea that no one can afford a house or that it is hurting real estate sales isn't a good enough reason to continue down that path. We know where it leads and it isn't good.

The real problems are deeper. Wage stagnation, foreign property ownership, low interest rates for a decade that gave the perception of affordability etc.

[MillerTime GFG]

Paul Taylor, CEO of Mortgage Professionals of Canada on March 5th:

...These premiums have also generated significant profit for the government during our recent historically low arrears and default years, with a recent $4 billion going from CMHC to the Federal Government’s general accounts via a declared special dividend.
Even the NDP – not normally associated with the mortgage industry – supports our recommendation for 30 year amortizations for first time homebuyers, because, absent defined benefit pensions the select few now have, Canada’s economy historically relies on young Canadians who can join the middle class via the growing equity (through repayment – not just continuous appreciation) in homes they own.


Our association has never asked for outright removal of the stress tests; we are reasonably asking for a reduction of them to better counter three Bank of Canada rate hikes in 2018. Without some adjustments, homes will continue to be on sale for the wealthy and unattainable for the young middle class we promised to support.

https://www.facebook.com/MortgagePro...341?__tn__=K-R

Mortgage arrears are around 0.24% in Canada, one of the lowest rates in the world. There is not a week that goes by where at least one client doesn't say something along the lines of "I never used to have to provide this many documents" or "why are there so many documents required?" There is major due-diligence required to determine affordability even before the stress test was implemented.

[Bill Bumface]

I think more affordable housing makes a city more attractive for business. The transition stings, and it sucks for all of us that bought in the "old" environment, but after things level out, this is a good thing for Calgary and Canada.

[Calgary14]

Originally Posted by Hockey Fan #751

I feel like it just isn't a good idea to purchase the most expensive house you can afford as it doesn't leave a lot of room in your budget for other things and puts you in peril if interest rates increase and squeeze you out so in that sense, the stress test is a good thing.

As a home owner, I'm not a fan of the fact that my house has dropped a fair bit in value since I bought it just last year (it's probably dropped about $30,000 based on the sale price of similar homes around me). It sucks because I have a job opportunity in another city but it's impossible to sell given the equity I have in the home at the moment.

Couldn't you rent out your current place and move for the new job and rent there?

[PsYcNeT]

House poor is probably the most easily avoidable form of poor, and yet people are so bad about buying to the top of their affordability that we need rules like this to get them to pump the brakes.

Sad.