Canada

New Mortgage Stress Test Projected To Remove 50,000 Canadian Real Estate Buyers

New Mortgage Stress Test Projected To Remove 50,000 Canadian Real Estate Buyers

Many Canadian real estate buyers will need to adjust the home they were expecting to buy, due to B-20. Numbers from Mortgage Pros Canada (MPC), the industry lobby representing mortgage brokers, gives us insights on the impact of B-20 stress tests landing next month. The majority of people will only have to adjust expectations on how much they can spend. However, their estimates confirm a good chunk of people will no longer pursue buying.

About The Numbers

Every Spring, MPC conducts a survey of potential borrowers, to get a feel for the market. This survey gives incomes, and expected buying behaviour such as target prices. MPC ran these expectations against the mandatory stress test, that will be hitting the market in a few days. The stress test reduces the maximum buying power by over 20%, but most won’t be affected to that extent. MPC claims most people don’t borrow the maximum, so many won’t have to make the full adjustment. However, quite a few people will still need to lower price expectations.

How Many People Are Impacted

The good news first, the impact will be minimal for a fifth of people. An estimated 21% of buyers next year, about 140,000 people, will have to lower expectations by less than 2.5%. Actually, 78% of buyers will need to make an adjustment of less than 10%. Meaning they’ll have to look for a home 10% cheaper than the one they were expecting to buy.

Source: Mortgage Pros Canada.

On the flip side of that stat, this means 22% of buyers, about 154,000 people, will need to reduce their price target by over 10%. An estimated 7% of those people, will need to reduce price expectations by over 12.5% or more. MPC numbers show the vast majority of people will receive less than half of the expected reduction the stress test was expected to make.

Based on an estimated 700,000 buyers across Canada in 2018. Source: Mortgage Pros Canada, Better Dwelling.

Up To 50,000 Buyers May Have Been Eliminated

The required adjustment is anticipated to turn some people off of homeownership. MPC anticipates that every year, 100,000 prospective buyers who would qualify for a mortgage without a stress test, will be disqualified from buying their ideal home. Of those, they anticipate 50,000 to 60,000 will buy a “less attractive” home, and get over it. The other 40,000 to 50,000 people will no longer consider homeownership. That’s a massive 7% of buyers, potentially eliminated from the market.

The report didn’t specify which regions would be impacted the most. We did run some numbers previously, and determined places with the highest income to home price gaps would be disproportionately impacted. From a purely stats perspective, Vancouver, Toronto, and Fraser Valley are the three regions likely to see the biggest impact. This doesn’t technically impact prices, but removing a big number of buyers is going to make it pretty hard to move the needle higher.

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16 Comments

  • Reply
    bob 1 week ago

    Countries with the highest percentage of renters (about half) include Germany and Switzerland.
    Lowest, with 90 pc+ ownership include Romania and Nigeria.
    Where should Canada (at about 2/3) be headed?

  • Reply
    Jack 1 week ago

    Im not sure if i understand this, I thought the graph accounts for all buyers, if 7% can no longer buy a home, shouldnt those stats be reflected in there too? So 22% need to adjust their prices by >10%, along with the 7%, does that mean that about 30% of the population of buyers have to dramatically lower their prices or not buy at all? Or is the 7% who can no longer buy included in the last column of >12.5% price adjustments?

  • Reply
    M. 1 week ago

    Hmm,maybe it’s sellers that will lower their expectations.

  • Reply
    Jim 1 week ago

    Wrong wrong wrong! Wrong assumption!
    Sellers will simply lower their prices. Therefore no one will be eliminated from the market. This stress test is very very good for all buyers.
    Toronto and Vancouver needs reset button pressed down.

    Do not get me wrong. I am selling my property next year and I already adjusted my expectation accordingly. I am perfectly fine with the stress test. My realtor, however, seems to try to convince me that the stress test is somehow bad for me, which isn’t. Dishonest and misleading realtors will not be hired by me.

    • Reply
      Pam 1 week ago

      Hi Jim,
      What area are you in…i am also planning to sell mine next year. Maybe Sep next yea, i wanted to sell now but can’t sell due to some family issues. Hoping prices don’t go down too much! but i think 20% -30% seems easy to correct by next year. I am in Brampton…saw some houses listed for 800k then relisted at 680 but not getting any offers…this is crazy!

      • Reply
        Tim 7 days ago

        What is crazy is but only 6 months ago there were videos of line up in Brampton for new builds…….pushing and shoving….lol how things change….

        • Reply
          dana 7 days ago

          Be careful what you see; in Toronto, we have a lot so called “promoters” they can get you people lined up for anything to make it more attractive, but reality is – they are paid to line up! Real Estate industry is not regulated; it is managed by Board of Director from the industry. Most of them are RE brokers.

  • Reply
    Alistair McLaughlin 1 week ago

    This doesn’t technically impact prices…

    I’m pretty sure reducing demand does impact prices. Which will be a good thing.

  • Reply
    Jungle 1 week ago

    Jim your realtor is probably right in that your property will be worth less next year, and take much longer to sell. (if it does, some are having real trouble selling now. Look at all the price changes now on mongohouse, ever since ruling against TREB)

    It will take a large correction for prices to compensate for OFSI stress test. RE doesn’t correct overnight, the last correction took many years to pan out.

  • Reply
    M. 1 week ago

    There has already been a substantial correction in some areas,selling for less than asking,no more biding wars,inventory increase in DECEMBER? Large number of them are vacant and staged .more part time jobs then full time,canadian GDP dropping, tsx edges down.A 20% drop by spring easy.

    • Reply
      Neo 1 week ago

      That’s not saying much. Last Spring was insane. If prices just stay flat we will see a 20% year over year drop.

    • Reply
      Tim 7 days ago

      NO one is mentioning Calgary. Heard 15-20% cuts on some downtown condos from year ago levels…..

    • Reply
      dana 7 days ago

      I wish it will be 30% from the peak, as I have a bet with friends… 🙁

  • Reply
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  • Reply
    Justin Thyme 6 days ago

    Whenever you remove such a large pool of consumers from ANY market, the market responds by lowering the price.

    When sellers can not sell their house because there are no buyers that qualify, they have to lower their asking price until a potential buyer CAN qualify,

    The surest way to lower house prices is to restrict the demand. The best way to restrict demand is to make them unaffordable. Making it easier to buy (more affordable) by keeping the iterest rates low just isn’t addressing the original problem.

  • Reply
    Justin Thyme 6 days ago

    When the mortgage industry starts offering a guarantee, that they will refund a mortgage if the value of the house decreases, THEN I will take what they say with some credibility. Otherwise, i can only be treated as some misrepresentation to keep their profits high at the cost of the homeowner. They get paid, not based on the interest rate, but on the commission as a percentage of selling price.

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