A noticeable cooling off has occurred in the market in recent weeks
As the mortgage industry adjusts to the new reality of a heightened stress test for insured and uninsured mortgages, there’s been a cooling off of sorts in the housing market in recent weeks – although it’s not clear how significant a role the new qualifying rate has played in that slowdown.
A less hectic pace had already been widely anticipated in the market, with TransUnion’s Industry Insights Report noting that while home sales across Canada were up 76.2% on an annual basis in March, a “tapering off” might take root after the second quarter of the year due to lower demand.
The new stress test level represents a relatively modest increase from the previous rules, with the hiked rate reducing buying power by around 4% for most Canadians. Still, one BC-based broker told Mortgage Broker News that the announcement of a higher qualifying rate may have had something of a symbolic effect on the market.
“The new stress test didn’t have a huge impact on what people would qualify for – it was a minor reduction,” said Chad Oyhenart (pictured), a broker with The Collective Mortgage Group. “However, I think the news that the stress test was increased all around was enough to give the market pause, for sure, and give homebuyers a little bit of a tap on the brakes.”
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Oyhenart said that while many prospective homebuyers would be undeterred by the stress test hike when they realized that it was not a substantial increase, the headline news of a higher qualifying rate may have been enough to convince some that the time was not right to enter the market.
“You would have to go through the metrics with every single client in your database and say, ‘It’s dropped your maximum purchase price from $700,000 to $675,000,’” he said. “Most people would say that that’s not a big deal.
“But if they just hear the news that it will have an impact, I think that’s enough to make them reflect and pause a little more, for sure.”
While it may have played some role in slowing the market, Oyhenart said he wasn’t convinced that the stress test had been the most significant factor, particularly since previous levels of activity – booming house prices and massive interest in inventory – was simply not sustainable.
“It’s hard to pinpoint that [the market cooling down] was because of the stress test, or if it was just coincidental timing coming off its peak,” he said. “When the market’s going as hot as it has been, it can’t continue on that same trajectory forever.”
A common refrain among brokers of late has been that the slowdown has provided a welcome change of pace, with plenty of deals still to be made but the madcap intensity of the last six months fading somewhat.
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Oyhenart echoed those sentiments, saying that the mortgage industry was overdue a chance to catch its breath after a whirlwind opening half of the year.
“Whenever the market was going the way that it was, everyone was overworked, whether appraisers, lawyers, lenders, underwriters or funders,” he said. “Working at that capacity for any amount of time just starts to drain on the system.”
He also said that buyers were benefiting from the more relaxed market, with competition and the bidding process no longer as fierce, and other advantages emerging as a result.
“Any time that you get a slowdown and you’re no longer competing with 17 people for the same house,” he said, “[that means] maybe now you can get subject to financing clauses back on your purchase as opposed to having to go in subject free.”
