Friday , August 19 2022

Deep freeze in the housing market suggests that mortgage rules have overstated their mark


The deep ice in the Canadian housing markets continues. Latest housing market statistics show that housing sales and prices in January are lower than those recorded a year earlier.

Retrospective views of housing markets raise significant concerns. The effect of strict mortgage regulations seems to be longer than it was expected to start.

In January 2018, housing sales dropped after tougher mortgage regulations, including stress tests, were enacted. The numbers of January 2019 are the first piece of evidence that suggests that slowdown of the housing market has been rooted deeper than direct and direct response to policy interventions.

The continuing slowdown in housing markets presents at least two alternatives to government. The first alternative is to maintain the status quo and do nothing. The second alternative is to reconsider the policy interventions made in the recent past and see if there is any new evidence that guarantees policy change.

The decline in housing sales is expected in January 2018. A number of new regulations designed to tighten mortgage lending came into effect on the first day of last year. The sales in December 2017 were higher than usual when homes were blocked to close agreements to avoid the enforcement of tougher mortgage regulations a month later.

When the sales of January 2018 were 14.5 percent lower than the previous month, there was no surprise, and the downturn was added to the new stress test. Similarly, year-over-year sales dropped by 2.4 per cent from January 2017.

January 2019 sales figures are more disruptive. When compared to the previous year, sales last month had fallen by four percent. In fact, the Canadian Real Estate Association (CREA) revealed sales in January 2019 have been weakest since 2015.

In addition to selling, house prices have also softened. The average house price across Canada was $ 455,000, 5.5 per cent lower than last year.

January 2019 statistics offer the first opportunity to compare the annual change in housing market dynamics after the stress test comes into effect. Last month's decline exceeds what was seen a year ago as a sign of the fact that the markets are not only responding to new regulations, but & # 39 The markets have embraced a more systematic response characterized by fewer transactions and lower prices.

The weakness in housing markets also affects mortgage lending, business Big Five banks continue to dominate in Canada. The continuing slowdown in housing sales may have an influence on banks' mortgage portfolios – the first signs of this effect may soon be visible when the banks release their updated earnings report in the next few days.

Last weeks have seen various voices questioning and supporting the effectiveness of the tougher mortgage regulations. Some say stress tests are working properly. Phil Soper, CEO of Royal Lepage, of the opinion that stress tests are needed "for the health of the long-term economy."

Others believe that the stress tests have had an adverse impact on home buyers who are either unable to buy at all or forced them to use a less sufficient sheltered space than they would have in the absence of stress tests.

After reviewing the continuing decline in housing sales, Dave Wilkes, President and CEO of the Construction Industry and the Land Development Association (BILD), believe that the stress test "has overstated its target."

BILD has two higher proposals for the feds to consider. First, consider reducing the stress test threshold that requires lenders to qualify at 200 basic points above the contractual rate. As the interest rates have been reviewed up since the stress test has been implemented, merit is when reviewing the threshold.

Housing trade groups also recommend the reintroduction of 30 years for CMHC insured mortgages, which was available until July 2012.

First home assistants are likely to benefit from these changes. The ability to extend the amortization period to 30 years reduces the monthly payment and allows many to participate in home help that would otherwise be forced to rent at a time when vacancy rates rent on historic floors in large urban housing markets.

The 30-year mortgage judges point out their two obvious shortcomings. First, lenders still pay much more interest. Secondly, longer amortization periods contribute to house price inflation.

A good public policy should be responsive and rooted in evidence. Recent housing market data shows that the impact of tighter mortgage regulations has been longer than last and what most housing experts expect. Course correction could be a wise way forward.

Murtaza Haider is a associate professor at Ryerson University. Stephen Moranis is a veteran of a real estate industry. They can be reached in

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