On his way to making Jimmy Carter a one-term U.S. president,
Ronald Reagan famously asked Americans if they were better off
then than they had been four years ago. As Canada’s 2019
federal election approaches, the Conservative Party is hoping
to put a modern spin on that old classic.
“Am I better able to afford a home than I was four years ago?”
asked Conservative MP Tom Kmiec, the party’s deputy finance
critic, in an interview with the National Post. “The vast
majority of people say they’re not.”
The Calgary MP said he’s been hearing, primarily from people
under the age of 35, that the raft of policies governments have
introduced recently to pacify the housing market has still left
them with no hope of buying a home — a
frustration polls show is widespread.
And anyone refinancing a mortgage who can’t pass the stress
test introduced at the start of 2018 will be locked in with
their current lender. That means these homeowners are deprived
of one of the few sources of leverage they have over the banks:
the ability to shop around.
Industry players have been ramping up calls to repeal or reduce
the impact of the stress test, which currently requires anyone
applying for a mortgage to prove they can handle interest rates
that are 2 percentage points higher than their current rate.
Mortgage Professionals Canada has been calling for the stress
test to be reduced to three-quarters of a per cent or for the
return of 30-year amortization period, and was among the most
active lobbyists on Parliament Hill in September and October,
according to a Hill Times report.
“We need to find a way to help people make a down payment,” he
said. “It’s a combination of things that are now making it
unaffordable for young people to buy a home.” Kmiec mentioned
the stress test, rising CMHC insurance premiums and various
other measures provincial and municipal governments have
introduced as they’ve looked to calm the furious waters of
Canada’s housing market, particularly in Vancouver and Toronto.
Kmiec said he’s “not set on any specific objective,” especially
before the effects of the policy have been studied. He has been
pushing unsuccessfully to have the House of Commons finance
committee study the effects of the mortgage stress test. In
April, Bank of Canada governor Stephen Poloz said the bank
needs a year’s worth of data before a worthwhile study can be
conducted — a milestone that is now just a few weeks away.
Poloz said the mortgage stress test wasn’t so much about house
prices as making sure Canadians weren’t holding risky debt.
“The biggest risk we face in the financial system is that
household debt is not able to cope with a more normal level of
interest rates,” Poloz said during an October finance committee
meeting. “If people can afford (a mortgage) today but can’t
afford it 100 basis points from now, then we’re not doing them
Early reports, though, suggest both intended and unintended
effects from the stress test are already underway. A November
report by CIBC said that residential mortgage growth has slowed
more than anticipated, possibly due to rising rates combined
with the stress test, although it’s hard to untangle the two
And on top of recent policies, the CIBC report notes that “many
mortgages are now rolling over at higher rates for the first
time in a quarter-century,” which could be startling, although
not entirely unexpected for homeowners.
The most tangible effects of the new policies are among
different age groups, with mortgage originations for
millennials, aged 24 to 38, down 19 per cent,
said a recent report by
The same report found that Canadians aged 73 to 93 are taking
out mortgages at a staggering growth rate of 63 per cent more
than last year. Kmiec believes that’s because young Canadians
are asking their parents and grandparents to sign off on
mortgages for them after they’ve been stress-tested out of the
The CMHC also reports that the rental vacancy rate is
declining rapidly, from 3.7 per cent in 2016 to 2.4 per cent in
2018, which could be because potential homebuyers are being
pushed out of the market and into rentals.
There are no signs, though, of the stress test’s imminent
demise from the agency in charge.
“Given the risks and vulnerabilities in the current
environment,” the test is more important than ever, said an
emailed statement from a spokesperson for the Office of the
Superintendent of Financial Institutions, the independent
agency that introduced it.
“Based on our observations… the (stress test is) having the
desired effect of helping to keep Canada’s financial system
strong and resilient.”
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