There are many opinions out there when it comes to the Office of the Superintendent of Financial Institutions mandated stress test. When it came into effect in 2018, many saw it as a war on first-time homebuyers. The president of Toronto’s Real Estate Board Garry Bhaura explained that “While we saw buyers return to the market in the second half of 2018, we have to have an honest discussion on whether or not today’s home buyers are being stress tested against rates that are realistic.”
When the stress test was implemented, it limited the ability for potential homebuyers who had more than a 20% down payment to qualify for mortgages. It also enforced stricter rules for those looking for loans which required proof that they would be able to pay their uninsured mortgage rate plus a 2% increase. The stress-test also restricted the number of buyers who would be able to receive loans.
While it cooled the housing market in Toronto, many believed that it had significant effects on the local economy. “Home sales in the GTA, and Canada more broadly play a huge role in economic growth, job creation and government revenues every year,” explained Bhuara. “Looking through this lens, policymakers need to be aware of unintended consequences the stress test could have on the housing market and broader economy.”
On a more positive note, the stress test attained its “very targeted outcome,” said Brad Carr, CEO of Toronto-based Mattamy Homes, in an interview with Bloomberg. “It’s been achieved so it’s kind of overkill now.”
It not only cooled the housing market in Toronto, but consumer debt also slowed dramatically, down to the slowest pace in 35 years. Because those who would typically take on a more significant amount of debt were discouraged, if they remove the stress test, they would be able to “afford” more which would bring the housing market back to the frenzy it once was and increase the risk of financial ruin later on down the road.
So, is the mortgage stress test affecting the economy? Realistically, it depends on what tax bracket you’re in. If you’re not able to front the money for these new inflated mortgage guidelines, you will be affected. If you can afford it, it’s just another day looking for real estate.