Housing market cools in first half of year

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This article was published 04/06/2018 (2716 days ago), so information in it may no longer be current.

Changes to mortgage rules heralded in with the New Year have brought widespread market cooling across the country, a report released this month shows.

Sales have continued to dip as the government’s new mortgage stress test has weighed heavily on markets, wrote Robin Wiebe, senior economist with the Conference Board of Canada, in a recent report.

Home listings have declined since the beginning of 2018, the report said, which could signal potential home sellers are “concerned about re-qualifying for mortgages under the new rules.”

That’s consistent with what Shelley Stewart, a mortgage professional with Verico One Link Mortgage and Financial has been seeing on the ground, saying the local market has been “delayed” this year.

“Let’s say someone gets pre-approval and they’re out shopping for a home, actively looking. Well the market has been a bit delayed, with people waiting for homes to come available, waiting for homes to buy, maybe longer than they would have been in the past,” Stewart said.

As of Jan. 1, the new rules require people to qualify for interest rates higher than what they would pay. Commonly referred to as a “stress test,” the new rules require buyers to qualify for their mortgage rate plus two per cent, or the Bank of Canada’s five-year benchmark rate of 4.99 per cent.

The buyer has to qualify for the higher of the two.

However, that benchmark rate has continued to rise. Stewart said it jumped to 5.14 per cent, before settling at 5.34 per cent.

Those increases have been tough on potential buyers. Due to the fact listings have slowed down, and there are fewer houses available, buyers approved under one benchmark (say 5.14 per cent, for example) have often been unable to finalize purchases before the benchmark rises. That means they then have to start over again from square one, or maybe look at homes in a lower price range, Stewart said.

It means it’s been much more difficult to qualify for a mortgage in the first place, even if the most dire of predictions back in January (20 per cent decrease in purchasing power) haven’t come to fruition, she added.

“It’s become more challenging to qualify for clients, for sure. We’re busier than ever because clients are having to do more due diligence, more work beforehand and it’s more of a process to get approved,” Stewart said.

“Clients are really best served by digging into things and looking what their actual income is and what is the full scope of what they can afford.”

Nevertheless, the situation in Winnipeg has not been affected as much as the traditionally volatile markets, such as Toronto or Vancouver, the recent report said.

Unlike other areas of the country that are seeing buyers or sellers markets, Winnipeg’s has been classified as “balanced.”

In large part the changes have been good for business for mortgage brokers and various lenders, Stewart said, adding they’ve also had the effect of helping protect buyers from overextending themselves financially.

“I think in January you were seeing some lenders pull back because they weren’t sure about what they’d see. But now lenders are comfortable and understand what their requirements are. They are seeing ways where they can do business comfortably and serve their clients,” Stewart said.

One thing that’s noteworthy and people should keep an eye on, Stewart said, is that more than half of all mortgages are coming up for renewal this year, meaning it’s the first time they may have to deal with the new stress test rules.

If homeowners are looking to renew their mortgage, or transfer it to another financial institution, then they’ll be grandfathered in under the old rules.

However, if they’re looking to restructure or refinance their mortgage, they’ll have to contend with the new stress test benchmark, which could lead to some tough decisions, she said.

“This is the first time we’re seeing this in 10 years, with all these mortgages coming up for renewals. We’re getting some mixed talk right now,” Stewart said.

“But it also opens up the door for people to get more innovative and creative with how they go about things. It’s very interesting and there’s no one answer right now for what it will mean.”

ryan.thorpe@freepress.mb.caTwitter: @rk_thorpe