The association representing Toronto real estate agents has added its voice to calls for the federal government to modify its new mortgage qualification rule as home sales fell in February from an already weak level last year.
Garry Bhaura, president of the Toronto Real Estate Board (TREB), says the mortgage stress test introduced by Canada’s banking regulator is leaving some buyers on the sidelines as they struggle to qualify for a mortgage for the type of house they want to buy.
Mr. Bhaura made his comments Tuesday as TREB reported a 2.4-per-cent drop in homes sales in the Greater Toronto Area in February compared with the same month last year. The drop is especially notable because sales were tumbling last February after the stress test was introduced on Jan. 1, 2018.
The stress test requires banks to ensure that borrowers can afford their mortgages even if interest rates are two percentage points higher than the level they negotiated.
“The stress test should be reviewed, and consideration should be given to bringing back 30-year amortizations for federally insured mortgages,” Mr. Bhaura said in a statement.
“There is a federal budget and election on the horizon. It will be interesting to see what policy measures are announced to help with home ownership affordability.”
Several other groups working in the real estate and mortgage lending sectors have also urged the federal government to ease the stress test as home sales continue to weaken in Canada, particularly in Greater Vancouver and the Greater Toronto Area. The government is also facing calls to give first-time home buyers the option to repay their mortgages over 30 years instead of 25 years to lower their monthly payments and make it easier to get into the market.
But policy-makers are also facing push-back from some economists and regulators, who are arguing the stress test is serving its purpose to ensure home buyers are not taking on risky levels of debt.
Evan Siddall, chief executive of federal mortgage insurer Canada Mortgage and Housing Corp., said in an op-ed article published Tuesday in the Toronto Star that it is “short-sighted” to suggest the stress test is harming first-time home buyers who cannot qualify for mortgages.
He said the stress test has already helped to cool the market and lower home prices, which helps first-time buyers. CMHC’s analysis has concluded homes in Canada are 3.4 per cent cheaper than they would have been without it, he said. In Toronto, he said houses are 5.3 per cent cheaper, cutting the average cost by $40,000, while prices in Vancouver are over $80,000 cheaper.
Moreover, he said the stress test is insulating buyers from the risk of a housing correction, which can be catastrophic for the most indebted borrowers. He said people in the real estate industry “aren’t thinking beyond the next commission cheque” when they offer a false promise to buyers that house prices will keep increasing.
However, Jason Mercer, TREB’s director of market analysis, said the drop in home sales in the GTA has drained billions of dollars from the local economy, including spin off expenditures by home buyers.
“This hit has also translated into lower government revenues and, if sustained, could impact the employment picture as well,” he warned.
Toronto’s weak sales in February came on the heels of almost flat sales in January, raising questions about whether Toronto’s market will have the sales rebound that some had anticipated for 2019. TREB predicted last month that the volume of GTA home sales will increase by 7.3 per cent in 2019 after falling 16.1 per cent in 2018 and 18.3 per cent in 2017.
Bank of Montreal economist Robert Kavcic said the weather was bad in Toronto in February, which is typically a low-volume month, so he “would not read too much” into the decline.
Mr. Kavcic said TREB’s call for policy changes may mean real estate agents on the ground “are seeing soft conditions without much improvement.” But activity may improve once the snow melts, he said, especially since five-year fixed mortgage rates are coming down.
TREB reported that the average sale price for all types of homes climbed by 1.6 per cent in February to $780,387, driven largely by increases in condominium prices over the past year.
The average condominium sold for $562,161 in the GTA in February, up 6.1 per cent over last February, even as the total number of condo sales fell by 5.7 per cent last month.
The average detached home price fell 2.1 per cent to $980,914 in February, owing largely to declining prices in the suburban 905 region.