Happy Belated Lunar New Year everyone and wishing everyone a healthy and prosperous year! It's been some time since my last blog but I came across a rather interesting article summarizing what I've been hearing around the industry and with my own clients and it's between the slowing down of the real estate market and the difficulty of buyers being able to qualify for mortgages. Since the end of 2017 when the mortgage "stress test" was introduced, a welcome "cooling" of the market suddenly came and what many believed to be the start of a healthier trend began. What many didn't expect was the overall effectiveness of the stress test and it created certain negative ripples on the market as a whole. With the increased difficulty of borrowing, many buyers were affected and were unable to get sufficient funding to buy a home or to close a pre-construction home previously bought at a higher price. This led to many buyers stranded and in a real bind!
Another negative effect of the stress test branched off into the rental market. Since many potential buyers delayed their plans to make the jump from renting to buying, the rental market was over saturated and we hit record lows in vacancy rates. Simply put, supply was minimal while demand was sky high, thus creating a huge hike in rental rates year-over-year. With such immense price hikes, renters have a much higher incentive to stay put rather than move around after each one year lease agreements end and going month-to-month. This again puts strain on the supply of rental units and the cycle continues.
Now, I absolutely see the effects it has with first-time home buyers and their struggles with having an opportunity to enter the real estate market. They're thrown into a difficult position of either renting at a high price or buying something that does not meet their needs (location, size, etc.). The stress test also delays the ability of growing families to upsize since they are also limited by the test as well as limiting potential buyers for their home. The industry is seeing a different landscape this year since the Canadian economy is softening and economic growth is not as strong as anticipated thus changing the trajectory of the Bank of Canada from increasing interests rates again. There has been recent buzz that the industry is trying to adjust the mortgage stress test to today's current landscape. The article suggests that the stress test is no longer relevant as its original intention was based off of expected growth in GDP and that interest rates will no longer rise as originally anticipated. Hopefully, this gets corrected and some of the issues can be addressed in the near future.