What becomes of B-20 if interest rates fall?

What becomes of B-20 if interest rates fall?

What becomes of B-20 if interest rates fall?

With talk of the Bank of Canada not raising but lowering interest rates, brokers are wondering if the stress test will also be repealed.

“While it’s true that rates have been at historical lows since the end of the recession to help keep housing demand and monthly payments relatively cheap, the government has clearly been preparing us for rate increases with the B-20 stress test,” said Laura Martin, COO of Matrix Mortgage Global and director of Private Lending Hub. “The stress test has done its job.”

Earlier this month, Gluskin Sheff + Associates’ chief economist and strategist expressed his belief that the Bank of Canada would lower interest rates because of languid economic activity.

“We just came off two straight quarters of negative growth in real final demand,” David Rosenberg told BNN Bloomberg. “So, if we’re not in a recession yet, we’re just basically one notch away.

“What’s the Bank of Canada supposed to do in that environment? You first move away from your tightening bias to a neutral bias, which they’ve done. Now, they’re talking, at the margin, slight more dovishly, and the next move for an incremental central bank would be to start cutting interest rates.”

Benjamin Tal, CIBC’s deputy chief economist, has already stated that he believes a Canadian recession by next year is imminent, and Davelle Morrison, a Bosley Real Estate broker, wonders if renewed activity in the nation’s housing market might be just what the national economy needs.

“If Tal is predicting a recession in 2020, and the U.S. is already seeing signs of recession, chances are it’s coming, which means rates aren’t going up, they’re coming down,” she said. “The whole reason the stress test was brought in was because rates were going up and they wanted to protect consumers to make sure they could still afford their mortgages in a rising rate environment.”

She added that, while rates may go down, prices will keep rising.

“That’s exactly why Canadians need help purchasing real estate,” continued Morrison. “Prices are to go get higher no matter what, and that’s why I feel that we need to get more people involved.”

  • David Larock 2019-03-26 10:35:50 AM
    Morrison says that we are likely to have a recession but that house prices are "going to get higher no matter what".


    [Insert load groan from credible real-estate brokers everywhere.]
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  • David 2019-03-26 12:23:53 PM
    So the combination of lower contract rates combined with repealing B20 stress means that borrowers will be able to resume loans with 600 to 700% loan to income, which existed just two years ago and which brokers were more than happy to recommend to their clients. Add on 30yr ams while your at it. And you wonder why broker views are so often completely discounted by government. Prices are going to go up, you say, so why not just layer on more purchasing power for the borrower to help push them up even more. These comments just hurt broker credibility.
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  • Mark Matsumoto 2019-03-26 12:35:24 PM
    In general, I find our government and culture insulting because there is an underlying assumption that we, the people are stupid.

    If something goes wrong in our lives, it is mostly our own fault. I don't want the government and various regulators interfering with my life trying to "protect" me because they think I'm stupid.
    Many people don't take responsibility for their actions and look for someone to blame when they screw up.
    Get rid of the stress test. Let people make mistakes. That's how we learn.
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