Toronto’s real estate board is calling on the government to revisit the stress test as home sales in the country’s most populous city showed hints of a rebound in August, with price and volume moving up over July.
The Toronto Regional Real Estate Board said higher borrowing costs are not only affecting whether Canadians can buy homes but are also hitting existing homeowners nearing mortgage renewal. In such a climate, it said the Office of the Superintendent of Financial Institutions (OSFI), Canada’s top financial regulator, should weigh in on whether the current stress test remains applicable.
“Is it reasonable to test home buyers at two percentage points above the current elevated rates, or should a more flexible test be applied that follows the interest rate cycle?” its chief executive, John DiMichele, said.
A report released Friday found the number of homes sold in August was up 5,627 from 4,912 in July. This, however, is still 34.2 per cent below the 8,549 home sales in 2021.
It found that sales represented a higher share of new listings compared to the previous three months, possibly indicating some support for selling prices in the months ahead.
The data also show that the board’s MLS Home Price Index was up 8.9 per cent from the prior year, while the average selling price for all sales only increased slightly, by 0.9 per cent, to $1,079,500 from $1,070,201.
In an interview, the board’s lead market analyst said the drop in sales this year compared to last year, as well as higher borrowing costs, are partly due to uncertainty.
Jason Mercer said they’ve been asking for clarity from OSFI, the Canada Mortgage and Housing Corporation and the finance ministry regarding the stress test, amortization periods and price ceilings for mortgage insurance eligibility amid the rapid rise in borrowing costs.
“It’s important to hear what those bodies have to say about housing affordability,” Mercer said, noting the housing market is very sensitive to interest rates and will continue to be affected.
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The real estate board said removing the stress test when existing mortgages are switched to a new lender can provide affordability for existing homeowners. It also called for longer amortization periods on mortgage renewals to help in the inflationary environment.
There hasn’t been much change since the two percentage points stress test was put into place, Mercer said, adding that it’s important to have flexibility on how that test is applied, especially as the market moves through different stages of the interest-rate cycle.
“Does the (current) stress test make sense in an interest rate environment that’s much different from when it first came into place and also much different from the ultra-low interest rate environment we saw in 2020, in the first part of 2021 or all the way through to the first part of 2022?”