Additional mortgage stress-test measures opposed

WinnipegREALTORS® wholeheartedly supports the Canadian Real Estate Association’s (CREA) submission to the federal government’s Office of the Superintendent of Financial Institutions (OSFI), regarding its proposed revisions to Guideline B-20 — Residential Mortgage Underwriting Practices and Procedures.

The most concerning amendment amongst the proposed changes is the requirement for a higher qualifying stress test for an uninsured mortgage. If approved, it will require a borrower, purchasing a home with at least a 20 per cent down payment (such mortgages do not need to be insured under the existing rules, while less than 20 per cent down does require mortgage insurance) to qualify for a mortgage rate two percentage points higher than can be obtained from a mortgage broker and/or financial institution.

As CREA stated in its submission: “Introducing additional tightening measures while the housing market is still absorbing numerous changes over the last several years puts affordability at risk, could imbalance local markets across the country and has the potential to negatively impact the Canadian economy.

“Not only is homeownership a key contributor to the country’s GDP and overall economic health, it provides stability to communities and neighbourhoods and remains a cornerstone of Canadians’ investment goals, allowing individuals and families to invest in an asset that can grow in value and generate financial security for their retirement.

“The economic and social benefits of homeownership justify careful reflection by the federal government as it implements any new measures that may impact the housing market. The benefits of homeownership are universal, but all real estate is local. It is important to take into account that markets in Toronto and Vancouver have different realities compared to markets elsewhere in Canada — the vast majority of which are either well balanced or amply supplied. It is critical to consider and reflect on different areas of the country when enacting policy that impacts a wide swath of housing markets.”

CREA goes on to say they are concerned that “changes to housing finance rules are being driven by the realities of specific geographic markets and may ultimately negatively impact the economy.”

Winnipeg’s market is a good example of one that is balanced, stable and affordable, with very low mortgage default rates. Why should Winnipeg be penalized for overheated markets such as Toronto and Vancouver, where, based on provincial measures both the B.C. and Ontario governments have brought in, things are starting to slow down?

Finance Minister Bill Morneau has publicly acknowledged that all markets are not equal. In addition, MP Wayne Easter, chair of the House of Commons Standing Committee on Finance’s study, Canada’s Housing Markets: Benefits, Barriers and Bringing Balance, certainly heard from many national associations, such as CREA and the Mortgage Professionals Canada, that the nation does not have a single housing market.

In addition to the federal government’s seven rounds of measures to tighten mortgage lending rules, we now have the Bank of Canada’s 25 basis point rate increase in the prime rate in July, with another seriously under consideration this fall.  Where does it stop? More measures, such as those being proposed, will make it more difficult, if not impossible, for Canadians to enter into homeownership and build their future. This is especially true in other markets across the country where what is happening in Toronto and the Golden Horseshoe does not apply. The federal government shouldn’t unnecessarily intervene in markets that aren’t overheated.

There is always the law of unintended consequences, resulting from any new government measure. One measure that cannot be ignored is something CREA has already identified. The association is advocating that the federal government make changes to the Home Buyers’ Plan in order to make this successful program more accessible for people experiencing significant life changes.

You can imagine just how difficult it will be with new tougher mortgage qualifying requirements for Canadian families, needing to relocate to seek employment in a more expensive housing market, or when a marital breakdown means a couple has to sell the family home, but still desire to put a proper roof over the heads of their children. Making affordability harder to achieve will clearly have an impact on Canadians; more so than OSFI may realize with their proposed changes.

In short, put the brakes on more mortgage rule changes. As CREA strongly recommends, “We do not believe it is prudent to extend the stress test to uninsured mortgages until the market has had time to absorb and analyze the impact of the compounding effect of interest rate increases and the previously announced tightening measures.”

Backing the WinnipegREALTORS® position is its submission last year to the federal government on Canada’s National Housing Strategy. It speaks to the intrinsic value of homeownership to Canadians and its positive impact on the national economy. The submission stresses that all housing markets are local, so any housing solutions need to be tailor-made to local market conditions. What is happening in local housing markets is not “one size fits all.” As a result, such an approach is not going to work across the country.

This submission can be accessed at PositionPapers