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of the Bank of Canada not raising but lowering interest rates, brokers are wondering if the stress test will also be repealed.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