The housing declines observed nationwide last month might be a disturbing indicator that the current mortgage rules are actually too heavy-handed, according to Ryerson University associate professor Murtaza Haider and real estate industry veteran Stephen Moranis.
In a recent co-written piece for the Financial Post, the pair noted that January sales numbers fell by 4% annually. This followed the already noticeable 2.4% deceleration in January 2018, and “are the first piece of evidence suggesting that housing market slowdown is deeper rooted than a direct and immediate reaction to policy interventions.”
“The January 2019 statistics offer the first opportunity to compare the annual change in housing market dynamics after the stress test came into effect,” Haider and Moranis wrote.
“The decline in last month above and beyond what was observed a year ago is indicative of the fact that the markets are not merely reacting to new regulations, but the markets have embraced a more systematic response that is characterized by fewer transactions and lower prices.”
Read more: Stress test is already obsolete – real estate exec
While the government can certainly decide to maintain the current regulations and let things run their course, January 2019 sales activity should compel the federal administration to “rethink the policy interventions made in the recent past and see if there is any new evidence that warrants a change in policy.”
“Good public policy should be responsive and rooted in evidence,” the authors added. “A course correction might be a prudent way forward.”
Crucially, the recent developments will undercut much of the largest institutions’ mortgage operations – a situation that might cycle back to trigger even worse systemic vulnerabilities down the line.
“The weakness in housing markets also affects mortgage lending, a business The Big Five banks continue to dominate in Canada. The continued slowdown in housing sales may have influenced banks’ mortgage portfolios — the first signs of such an effect could soon be visible when the banks release their updated earnings report in the coming days.”