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A couple of notes on the tougher stress test for mortgage applicants that starts on June 1:

  • It will have only a fairly modest impact on home buying budgets, with the worst of it felt in Vancouver and Toronto.
  • Many of the options available for cooling the housing market work in the short term against first-time buyers, the people most victimized by runaway house prices.

The new stress test applies to people with down payments on both sides of the 20 per cent threshold where mortgage default insurance is no longer required. You must now be able to handle the higher of a mortgage rate of 5.25 per cent or your contract mortgage rate plus 2 percentage points. The previous reference rate was 4.79 per cent.

In a look at 11 cities across the country, the real estate website Zoocasa found the amount buyers can qualify for has been cut by a low of roughly $14,000 in some Western Canadian cities and $47,000 in Vancouver. Zoocasa’s conclusion: “the impact of this change will be fairly minimal.”

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Anger at soaring house prices is growing among young adults, who are starting to feel that owning a home may never happen for them. Many ideas have been proposed to slow down the huge price increases we’ve seen in cities across the country – an interest rate increase by the Bank of Canada, clearing the way for more home building in and around cities, an end or adjustment to the capital gains tax exemption on principal residences and, of course, intervention by the federal government and its agencies.

The stress test is a reminder that government intervention tends to focus on reducing the pool of people who can afford to buy a home. This means that the process of taking the frenzy out of housing will at first make it harder for struggling first-time buyers. Their best hope is that price increases ease back or stop altogether, while their income and down payments catch up.


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Rob’s personal finance reading list

Priced out of housing, priced out of renting

How bad is the housing situation in Canada? In some cities, young adults are priced out of both owning renting. And in Toronto, where rents fell in the pandemic, the decline appear to be done. The forecast is for rents to start heating up by fall.

Online grocery shopping is here to stay

You did it during the pandemic to avoid those crowded supermarket aisles. You’ll continue to buy groceries online because it’s so convenient, a new report says. There are top options for online food shopping – have orders delivered to you, or go for curbside pickup. We’ve done some curbside orders. Doubt we’ll continue, post-pandemic.

13-year-olds trading stocks?

Some might say a U.S. investing giant offering accounts to kids as young as 13 is a great development in teaching kids financial literacy. I see it more as a symptom of a bull market that has made a lot of people think this whole investing thing is pretty easy and everyone should pile in. By the way, Canadian investment firms require clients to be of the age of majority to open accounts.

So you plan to keep working at home

You can bet employers are looking at the issues raised in this Forbes article about what Americans were doing when they were supposed to be working remotely from home. If you plan to keep working from home after pandemic lockdowns end and thereby saving lots of money on commuting costs, you’ll want to demonstrate your productivity. If you’ve moved to a new city to buy a home, check out this advice on how to feel at home in your new location.

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Ask Rob

Q: Can you get a reverse mortgage on a condo?

A: Yes, says the largest provider of reverse mortgages, Home Equity Bank. Condos represent about 20 per cent of the company’s reverse mortgage business.

Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.


Today’s financial tool

Details on a federal program offering up to $5,000 in grant money if you make your home more energy efficient.


The money-free zone

From the Funkadelic vault of amazing songs – Good Thoughts, Bad Thoughts.


What I’ve been writing about

More Rob Carrick and money coverage

Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.

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Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.

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