Relaxing the stress test would lead to as much as an additional 6% price growth by the end of 2020
While it was a well-intentioned policy crafted in a time of seemingly uncontrollable price growth in Canada’s largest housing markets, B-20 actually led to approximately 40,000 fewer home sales nationwide (on an annual basis) during the final quarter of last year, according to Toronto-Dominion economists Rishi Sondhi, Ksenia Bushmeneva, and Derek Burleton.
In a client note earlier this week, the trio argued that the impact of the stress testing has been far more enduring and extensive than anticipated.
To illustrate just how significant B-20 has been, the economists said that an immediate nullification of the regulations would boost Canadian home prices by around 6%, which will be additional to TD Bank’s 4% increase forecast, by the end of next year.
The market is now at a stage where the federal government should begin considering a more laid-back approach to the issue, TD Bank stated.
“Right now it’s a one-size-fits all type of policy, and borrowers differ in their ability to service their mortgage, and they’re different in terms of their risks,” Bushmeneva said in an interview with Bloomberg, adding that particular attention should be paid towards relaxing the “somewhat arbitrary” 200-basis-point limit on new uninsured mortgages.
Ontario Real Estate Association CEO Tim Hudak expressed similar sentiments in his piece for Financial Post published earlier this week, noting that B-20 has done damage to the market “beyond what many thought was the worst case.”
Hudak cited official figures stating that nationwide housing resale volume fell 11% year-over-year in 2018, the first year of the stress testing’s implementation.
“Not only are many people unable to become home owners at all; others can’t upgrade as their families grow, which in turn means they aren’t selling their starter homes to people trying to buy for the first time,” Hudak wrote.
