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House Wars: A New Hope
The BC Real Estate Association (BCREA) is calling on the federal government to revisit the B-20 “stress test,” so that more BC families can achieve their goal of homeownership. Mortgage lending rules, known as the B-20 stress test, have eroded housing affordability by reducing the purchasing power of families by as much as 20%. Introduced last year as a way to curtail the upwards surge of pricing as well as widespread speculation, the stress test forces even the most credit-worthy borrowers with large down payments to qualify at a rate 2 percentage points above the rate they negotiate with their lender.
The stress test has caused a sharp decline in the attainability of homeownership in Canada. Since its implementation, home sales have declined up to 18% across the country. Canada’s largest urban centres, where lack of affordability was especially acute before the new rules came into effect, have been hardest hit.
Home sales have declined nearly 25% in Toronto and more than 45% in some areas of Vancouver over the same period.
This has resulted in a trickle down effect on other areas closely linked with the overall health of our national economy. Families who are worried about declining home equity find themselves cutting back on retail spending, home renovations as well as other products and services, so it is proving to exhibit an all encompassing negativity on the cycle of homeowner equity.
A sharp decline in housing demand also causes home builders to pull back on production, arguably when it’s needed the most, leading to slower growth of the housing stock and yet another supply crunch coupled with upward pressure on home prices down the road. Accordingly, the Canadian Home Builders Association has expressed similar concerns regarding the stress test, and the Canadian Real Estate Association and Toronto Real Estate board have recently made similar appeals.
When families are locked out of the housing market by the most strict of mortgage rules, even the treasury is affected. The sharp decline in home sales caused by the stress test has cost the government an estimated $400 million in lost Property Transfer Tax revenues, money that could have seen its influence applied to health care, education, and affordable housing.
So if ratified and the stress test is expunged, what does this mean for the buyer and the market they face? Prospective buyers as a result would see a return to normalcy for the mortgage application process as they would not have to qualify for a rate higher than that which they’ve already negotiated.
As we currently sit with the most recent stats, home sales in the Lower Mainland have reached a 33-year low, with other parts of Canada not far from that mark. With many people opting to take a wait-and-see approach, eradicating the stress test would verifiably act as a catalyst to help jump start our lethargic market, opening the door for active buyers once again, as well as feeding life and much needed revenue into our local, provincial, and national economies.
Always available for your inquiries, please reach out to Jeff at 604-807-0004 or [email protected] for solutions to your challenges. Let us help you take charge of making your dreams of homeownership a firm reality.