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Tougher mortgage qualification rules are “unduly suppressing” home sales in Canada by disqualifying 18 per cent of buyers who cannot pass the stress test despite being able to afford their preferred home, a new report concludes.

A report by Mortgage Professionals Canada, which represents mortgage brokers and others working in the mortgage industry, estimates about 100,000 Canadians have been prevented from buying their preferred home since late 2016, because of new federal mortgage rules that aim to ensure buyers can still afford their mortgages even if interest rates are significantly higher than the rate they negotiate.

The 100,000 estimate includes 60,000 to 70,000 buyers who were unable to purchase because of the stress test applied on insured mortgages starting in October, 2016, as well as a further 20,000 to 30,000 impacted by the newer stress test applied to uninsured mortgages on Jan. 1 this year.

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Housing economist Will Dunning, who wrote the report, estimates 40 per cent to 50 per cent of all home buyers in the first half of this year – about 140,000 to 175,000 buyers – were subject to the new stress test on uninsured mortgages, and 15 per cent to 18 per cent of them failed that test.

Most of those buyers still purchased, but had to buy a less expensive home. The average required price adjustment was $28,750, Mr. Dunning’s report concluded.

On a continuing basis, he expects about 120,000 buyers a year will have to make an adjustment because of the mortgage stress test and estimates 30,000 to 40,000 of them will face larger effects and have to delay their purchase plans for a “prolonged period” to save up more for a down-payment.

“Compared to other mortgage policy changes that have been made over the past decade, the stress tests are one of the most impactful,” Mr. Dunning says.

He cites the two new stress tests as the primary cause of the 12.5-per-cent drop in home sales in Canada in the first half of 2018 on an annualized basis compared with all of 2017, and the 16.5-per-cent drop this year compared with 2016.


While many economists predict sales will recover in the second half of 2018 because people will adjust to the policy changes, Mr. Dunning disagrees, saying the negative effects “could be long-lasting.”

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A consumer survey for Mortgage Professionals Canada found 54 per cent of people who are not homeowners but plan to buy in the next five years expect the stress test to have “significant negative impacts” on their ability to buy, while 35 per cent think the impact would be moderate and just 11 per cent think the impact would be negligible.

The home-ownership rate in Canada has fallen from 69 per cent of the population in 2011, to 67.8 per cent in 2016, and Mr. Dunning forecasts it will continue to fall because of the challenges imposed by the stress-test rules.

He says this will add to the “financial stresses” that are already being experienced by younger generations compared to the baby boomer generation.

According to the report, economic softness in Alberta, Saskatchewan and Newfoundland has been “aggravated” by the stress tests, which have caused housing activity to be even weaker than it should be.

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