The tighter mortgage stress tests mandated by B-20 is responsible for Canadian residential mortgage volume falling by as much as $15 billion last year, according to a new CIBC report.
Said regulations, introduced in early 2018 as a response to the then-fevered pace of home price growth in the country’s hottest markets, represented anywhere between 50% to 60% (around $13 billion to $15 billion) of the overall shrinkage in last year’s volume.
Total mortgage lending activity across Canada dropped by 8% annually in 2018, representing a loss of $25 billion. Aside from B-20, other contributing factors were interest rate hikes and continuously declining affordability.
CIBC World Markets Inc. deputy chief economist Benjamin Tal stated that this trend points towards a clear conclusion: while the stress test is indeed necessary, the federal government should also begin contemplating possible amendments.
He argued that the regulations have become “a bit too severe at this point in the game.”
“I’m not saying to kill B-20 by any stretch of the imagination,” he told The Globe and Mail. “I’m just saying it should be a bit more flexible, and more dynamic, to reflect market conditions.”
Aside from lower mortgage volume, the stress test has also been attributed as a major influence in lower sales activity, with transactions plummeting by 11% last year. This was most apparent in Vancouver, which suffered a 32% decrease in home sales in 2018.
Worse, this weakness is showing no signs of abating any time soon. Latest data from the Canadian Real Estate Association showed that national home sales fell by 4.6% year-over-year in March, leading to the lowest readings for that month since 2013.