Ongoing negotiations for a new North American Free Trade Agreement highlight a looming crisis for Canadian homeowners.
“Every economist may not agree on the timing, but interest rates are heading up, which means mortgage rates are heading up, and if you add 200 basis points onto every increase, you’re really pushing a lot of first-time homebuyers out of the market and impairing the dreams of move-up buyers who have kids and want a little more space,” said Ontario Real Estate Association CEO Tim Hudak.
That OREA has joined a growing a chorus of mortgage and real estate professionals who believe the stress test should be rescinded is unsurprising. Led by Hudak, OREA has championed helping first-time homebuyers attain homeownership, however, that buying cohort has arguably been B-20’s greatest casualty.
Additionally, in spite of the Canada Mortgage and Housing Corporation’s amendments to qualification guidelines for the self-employed, the stress test remains insurmountable for a great many.
“Our point of view at OREA reinforces the federal government to take a second look at the stress test because every time the interest rate goes up, the stress test goes up 200 basis points above that, making it even harder to get a mortgage and penalizing millennials, new Canadians and entrepreneurs trying to get into the housing market,” continued Hudak. “We certainly support government programs that encourage responsible and sustainable borrowing, but this pile-on of all kinds of new rules, regulations and taxes harms aspiring homeowners and sets back the potential of our economy.”
Hudak is the former leader of the Progressive Conservative Party of Ontario, and he joins the Conservative Party of Canada’s Deputy Shadow Minister for Finance in calling on the Trudeau government to annul, if not at least study, the stress test.
“The new stress test is going to block up to 60,000 Canadians from being able to buy a home,” MP Tom Kmiec previously told MortgageBrokerNews.ca. “About 100,000 Canadians will probably fail the stress test and won’t be approved to borrow from a federally-regulated lender and that will push them to the unregulated lenders. We know from a CIBC Capital Market report that 47% of all mortgages need to be refinanced in 2018. In the year they knew there would be so many people refinancing, they still imposed the stress test. That was irresponsible and unfair.”
Rancorous NAFTA negotiations have hitherto prevented another rate hike, but, according to Hudak, the entire episode sheds light on a problem that will soon loom large.
“In an era of rising interest rates, whether that rise is stalled by uncertainty in NAFTA or not, we need to drive home the importance of revisiting the stress test,” said Hudak. “It doesn’t make sense to keep piling up more expensive mortgages on top of rising rates from the Bank of Canada.”