Mortgage stress testing remains a powerful tool for cooling hot markets, economists say.
Canada’s ferocious housing market is again calling for action to cool the “bubble” so that it doesn’t burst and create sadness for the economy as a whole. However, given the extraordinary federal pandemic support and the Bank of Canada’s reduction of interest rates to near zero to prevent a severe recession, fearful rises in home prices caused by a surge in demand were widely predicted.
Benjamintal, deputy chief economist at CIBC, said the biggest problem that has plagued the housing market from a long-term perspective is insufficient supply to meet demand.
“in reality… We are fighting supply problems with demand tools,Tal told The Epoch Times that some of the measures being discussed could only affect the dynamics of the margins.
In the short term, he says, the most promising tool for chilling frenzy is the mortgage stress test for uninsured mortgages with a down payment. 20% or more.. As some others have suggested, he does not require policy makers to take additional steps, such as taxing capital gains for speculative investment.
One of the problems with introducing new regulations, according to Tal, is that it can be difficult to remove them at a later date.
And if new measures were introduced, what he sees as a somewhat temporary situation, where the historic low interest rates that people are desperate to take advantage of are pulling future demand into the present. Will weaken.
“In many ways we owe our work from the future,” he said.
Tal hinted that when this phenomenon eventually disappeared, it would cool naturally.
Fine-tune stress test
An additional concern for policy makers in an era of rapidly rising home prices and sales is speculative investment. This is a phenomenon that is less of a concern today than in 2016-17.
Former Governor of the Bank of Canada Stephen Polo’s In an interview with BNN Bloomberg on March 18, he said that the side effects of the hot housing market are an acceptable trade-off to prevent greater economic damage during a pandemic.
He said there might be signs of speculation, but “otherwise it would be a really, really bad recession and we have to accept it.”
A Numerous measures Introduced in late 2016 to early 2017, primarily to cool the Toronto and Vancouver markets. Fair Housing Planning in Ontario..
However, when the Financial Institutions Authority (OSFI) introduced a mortgage stress test for uninsured borrowers and industry professionals in 2018. Deemed This is the most powerful way to slow down the hot markets in Toronto and Vancouver. They also criticized the test as being too rigorous and punitive because it did not respond to changing market conditions.
In the stress test, uninsured borrowers must qualify for the BoC’s five-year traditional mortgage rate or the mortgage contract rate plus 2%, whichever is higher.
OSFI is currently proposing to change its eligibility rate to 5.25% or the borrower’s mortgage contract rate plus 2%, whichever is higher. The minimum qualification rate of 5.25% is the current BoC qualification rate. 5-year rate 4.79%.. However, another notable change is to review the test parameters at least once a year to keep them environmentally friendly.
Tal said the most important development made by federal banking regulators on the revised mortgage stress test was at least an annual reexamination.
“It’s a move in the right direction, it makes sense to me,” he said.
Canada’s national housing debate is often strongly influenced by Toronto and Vancouver.In Toronto areaIn the first three months of 2021, monthly sales and average resale home prices increased significantly compared to the first three months of the last three years.
By metro VancouverIn March 2021, the region recorded record monthly sales. That’s 72.2 percent above average March 10-year sales.
National average house price hits record high $ 678,091 In February, it increased by 25% year-on-year.
While Canada Mortgage and Housing Corp. When we predicted prices to fall during a pandemic last spring, the prediction was wrong, but now there is evidence that the housing market is overheating at the national level. Sell to new list Percentages above the levels reached in 2016-17.
“The current Canadian housing market situation could expose lenders to increased financial risk. OSFI is currently taking positive action to help banks remain resilient.” Stated. April 8..
That same day, Finance Minister Christia Freeland The government said, “We will continue to monitor the state of the housing market across the country.”
Conservative MP Pierre Poirievre On April 5, Canada tweeted that there was a “huge housing bubble that collapsed in a huge turmoil.” He hopes the Bank of China and the federal government will put an end to support for programs that inflate the housing market, such as the purchase of government bonds by the BoC and the provision of loan guarantees to banks for uninsured mortgages by the federal government. I’m out.
As the Bank of Canada expects, if mortgage rates rise, some help may come. Reduce that purchase Of Canadian government bonds. However, the BoC is not expected to raise interest rates immediately.