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Federal updated mortgage ‘stress test’ pushing homebuyers out of market

June 10, 2021   ·   0 Comments

By Jessica Laurenza

As of June 1, the federal government has implemented a new mortgage stress test for homebuyers with the intention to reduce buying power by about four per cent to help cool off an extremely heated and competitive real estate market.

In Dufferin County, it’s difficult to find a property for lower than $600,000, so with this new stress test, it will start pricing people out of the market as they won’t be able to offer prices as high.

“It’s a good idea and I see why [the government] did it…people aren’t going to over-extend themselves anymore; they’ll just be buying what they can afford,” says Claire Knight of Go With Crowe real estate.

Although this stress test will restrict buyers, “the government and financial companies are protecting us because people are becoming impulsive,” added Knight. This change is going to help gently bring the market back to normal, not encourage drastic drops in pricing, she noted.

Knight explains that she sees people who can afford a $600,000 home but because the interest rates are so low and they are approved for a $750,000 home – they max out what they can afford. This change will affect higher priced homes because people won’t over-extend themselves because they will only be approved for what they can afford.

Some people were paying as much as $200,000 to $300,000 over list prices just to get into the market.

The rental market and first-time home buyers will be most affected by these changes, said Knight. Rentals, an already oversaturated market, will consequently affect renters as lots of landlords or owners of rental properties are cashing out and evicting tenants.

“People are paying more than the original monthly rental amount just to get into a house,” Knight explains.

She says she’s seen local residents paying $2,700 a month in rent for a townhouse – a price point that could cover most mortgages.

First time home buyers, who need insured mortgages, will definitely feel the brunt of this stress test as it further restricts a market that people have a hard enough time getting into.

Since the pandemic began, there has been pent-up demand across Canada, not just for houses, but for any product or service due to an increase in disposable income.

“People have the money to spend because they’re not participating in recreational activities like fancy dinners or concerts so they have additional funds to buy bigger houses and they’re getting ‘an itch’ from being stuck at home,” Knight states.

The stress test comes after an astonishingly competitive year for real estate to try to settle the industry down by limiting what homebuyers’ mortgage eligibility is.

Knight estimates the rates may increase a little bit but they will not skyrocket.

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