Tag Archives: mortgage stress test

Ontario markets among Canada's least affordable: ReMax

Ontario markets among Canada’s least affordable – ReMax

Latest News


Ontario markets among Canada’s least affordable – ReMax

Despite a commonly held notion that housing in Canada is unaffordable, a majority of Canada’s largest cities (75 per cent) are currently undervalued, according to the 2020 ReMax Housing Affordability Report.

Unfortunately, seven centres in Ontario rank in the top 10 markets that are least affordable.

“Affordability was a cornerstone narrative during last year’s election, perpetuating the overall banner statement across Canada that real estate is increasingly unaffordable and unattainable, particularly for younger, first-time home buyers,” Christopher Alexander, executive vice-president and regional director, ReMax of Ontario-Atlantic Canada, told HOMES Publishing. “This perception is largely influenced (and skewed) by the Toronto and Vancouver markets, which represent some of the most expensive housing markets in North America. However, the housing market is more than these two cities and paint quite a different story. More markets are affordable than not, and most are accessible, with 75 per cent of brokers agreeing that their markets are undervalued.

In markets such as Toronto, demand is far outstripping supply, pushing prices up considerably as a result. “We need to continue to push for an increase in housing supply for buyers and renters, but we have yet to see a comprehensive national housing strategy to help facilitate this shift,” says Alexander.

“Given that approximately 110,000 new Canadians are settling in the GTA each year, the lack of available supply is a huge problem. This is concerning for affordability and needs to be addressed by a national housing strategy. Otherwise, we’ll only see the problem continue to grow and the home prices will continue to climb across the GTA.”

Of the regions surveyed, Winnipeg, Regina and Halifax are currently the most affordable markets, with average sales prices of $281,105, $301,473 and $319,071, respectively. Vancouver, Toronto and Mississauga are currently the least affordable regions in Canada, with average sales prices of $1.19 million, $883,520 and $760,005, respectively.

In Toronto, factors such as the OSFI mortgage stress test, listing shortages, rising prices and saving enough for a down payment are cited as preventing buyers from purchasing property. Buyers in this region are primarily looking to purchase condominiums, but as one of Canada’s least affordable housing markets, they continue to be priced out.

Emerging trends such as co-ownership with friends and family have become common in hot markets such as Vancouver and Toronto, in order to overcome the hurdle of high housing prices. In regions such as Brampton, Edmonton and Ottawa, sharing a single-family home between two families, dividing the floors between them or children seeking financial support from parents for down payments are becoming more common practices.

“All levels of government must work together to find a solution to Canada’s inventory issue, as the market will remain elusive for many otherwise,” says Elton Ash, regional executive vice-president, ReMax of Western Canada.


SHARE  

Featured Products


REFEB_Royal_LePage_fi

Get ready for a hot market in the GTA this spring

Latest News


Get ready for a hot market in the GTA this spring

From the economy to interest rates, to government involvement and the mortgage stress test, to new home supply and affordability, there’s a lot to pay attention to this year as you go through the new-home buying experience. But, for all the challenges that these topics represent, know this: Ontario, and especially the GTA, is once again positioned for a hot market this spring.

According to the latest Royal LePage House Price Survey, the aggregate price of a home in Canada increased 2.2 per cent year-over-year to $648,544 in the fourth quarter of 2019. And for this year, the realty firm is forecasting 3.2-per-cent price growth to $669,800. For the GTA, the news is even better, and homeowners and homebuyers can expect a hot market this spring.

Greater Toronto Area

Low supply, population growth and increased consumer confidence continue to fuel home prices in the GTA. In the fourth quarter last year, the aggregate price of a home in the region increased 4.8 per cent year-over-year, rising to $843,609. During the same period, the median price of a standard two-storey home rose 4.4 per cent to $982,944, bungalows 2.4 per cent to $806,977, and condominiums increased 7.8 per cent to $565,919.

“The Greater Toronto Area is at a pivot point where we are seeing signs that prices could begin to rapidly increase,” says Kevin Somers, chief operating officer, Royal LePage Real Estate Services Ltd. “The region has a very low supply of listings while we are seeing more potential buyers trying to enter the market.”

Home price growth varied significantly across the region in 2019. While some areas showed stabilizing prices and healthy price growth, many regions, including the city centre, showed the potential for rapidly accelerating appreciation rates driven by high demand and low inventory. Significant price gains were seen in Pickering and Mississauga, where the aggregate price increased 9.7 per cent and 7.9 per cent year-over-year, respectively. The aggregate price of a home in the City of Toronto increased 6.6 per cent year-over-year.

Ajax and Oshawa were the only two areas to show a year-over-year decline in aggregate price. The aggregate price of a home in Ajax and Oshawa decreased 1.2 per cent and 1.8 per cent to $661,049 and $524,423, respectively.

Changes to the stress test?

In the first half of 2019, some buyers remained on the sidelines waiting to gauge the potential impact of the federal mortgage stress test, but began to return to the market in the third quarter.

“The federal government has signaled that changes could come to the mortgage stress test mechanism in 2020,” says Phil Soper, president and CEO, Royal LePage. “The stress test pushed people out of real estate markets across Canada temporarily. For the most part, buyers have adjusted, yet it still represents a significant hurdle as families pursue the dream of owning their own home.”

Soper adds that the impact of the regulations-driven drop in demand is felt very differently in different parts of the country.

“We believe policy makers have the necessary experience to modify the tool to meet the reality of today’s Canada – that we have very different and varied economies, and by extension housing policy needs, from region to region.”

RELATED READING

Outlook 2020 – 5 things you need to know about real estate this year

Forecast 2019 – where are Canada’s hottest housing markets?

 

SHARE  

Featured Products


cl_dec19_industry_report_fi

It’s time for the federal government to update the mortgage stress test

Latest News


It’s time for the federal government to update the mortgage stress test

It has been nearly two years since the federal government’s mortgage stress test was first introduced with the intent to cool the hot Canadian housing market. Since then, particularly in the GTA and Vancouver, there has been a softening of demand in the housing sector as the market adjusted and potential homebuyers looking to purchase a new home have stepped off the sidelines. In the GTA, the stress test did its job in reducing demand, but did so by shutting out hundreds of thousands of potential homebuyers. It did nothing for the real issue, that being that the GTA has a housing supply problem.

The stress test came into effect in 2018 to protect consumers by limiting the amount of money they could borrow for a new home. It meant that all home purchasers have to qualify under the Bank of Canada benchmark five-year rate (5.34 per cent) or the rate offered by the lender plus 200 basis points or two per cent.

Unfortunately, the stress test addressed demand and not supply. Home prices stabilized because tens of thousands of young families and newcomers to Canada were locked out of the housing market. In markets with growing populations, it is very difficult to solve supply side problems with demand side solutions. Furthermore, reducing demand did not improve affordability because any stabilization of pricing was matched with reduced spending/borrowing ability.

Why do we have a supply issue? The GTA’s population is growing at the rate of 115,000 per year and the inability to build enough new homes fast enough is a problem. We are falling short by about 10,000 units a year. The result is the affordability challenge we have seen across the GTA over the last five to 10 years. Demand side measures like the stress test have only proved to be a bandaid solution.

With markets now stabilized, and the cumulative effects of changes now surpassing the original policy goals, it is time for the federal government to update the stress test to better align it with current market conditions, specifically replacing the current “blanket” two-point stress test with a declining rate stress test based on the mortgage term. The Canadian Home Builders’ Association (CHBA) has some recommendations that would see the stress test remain unchanged for mortgages with open terms and variable rates, but reduced for fixed rate, locked-in terms, eventually diminishing to 0.75 for terms of five years, and be eliminated entirely for seven- or 10-year terms.

The CHBA also recommended reintroducing 30-year amortization periods for first-time buyers. First-time homebuyers have been inordinately affected by the federal government’s changes, yet they are amongst the lowest-risk group of buyers. It’s time to reintroduce the 30-year amortization for insured mortgages taken on by well-qualified first-time buyers. This will address growing inequities in mortgage access that disproportionately impact younger first-time homebuyers trying to enter the housing market.

Implementing the CHBA recommendations would return the top 64 per cent most qualified of buyers to the market and would allow 89 per cent of first-time buyers, a low risk group, to re-enter the market with the hope of homeownership. Those returning would still be lower-risk as they would still need to pass the adjusted stress test, debt service ratios, down payment requirements, credit rating scores and mortgage insurance requirements.

Dave Wilkes is President and CEO of the Building Industry and Land Development Association (BILD).

bildgta.ca

SHARE  

Featured Products