Homebuyers, lenders face new reality amid tough mortgage stress tests
Toronto is poised to post some ugly year-over-year home price comparisons in early 2018 which will likely “affect the psychology of the market” – even if homebuyers take the new stress tests in stride.
Average prices in the country’s largest real estate market have recently settled into the mid-$700,000s after hitting an all-time high of $920,791 in the spring amid a real estate frenzy.
As buyers and sellers take a wait-and-see approach after the stress tests kick in on January 1, the market will likely be off to a slow start, Scott Ingram, realtor at Century 21 Regal Realty Inc. and a chartered accountant, told BNN in an email.
“If volumes start out slowly then prices won’t be shooting up,” said Ingram, who added, “I don’t think they’ll decline much at all from current levels.”
Stability at current prices still means a significant decline from the April highs – there’s a 17 per cent difference between $920,791 and November’s average price of $761,757.
“If there’s no change in price then you’re looking at double digit, year-over-year losses, even though prices are just remaining flat,” said Ingram.
“The majority of the media won’t report that subtlety, they’ll just go for the more scandalous ‘diving’ or ‘plunging’ prices – and I think that very well may affect the psychology of the market.”
The first big psychological test, both in Toronto and nationally, will be the new stress tests – known in the industry as the B-20 guidelines.
BNN talked to a handful of real estate insiders for their take on the year ahead. Here’s some of what they told us:
- “The stress test will clearly pressure real estate values. Hot real estate markets may at least stay lukewarm, but cool markets should get downright chilly in 2018.” – Rob McLister, founder of RateSpy.com
- “B-20 will put downward pressure on what some buyers can afford and in some cases will push some out of the market entirely. If we go with some of the estimates that have been floated around, this might be around 10 per cent of buyers.” – John Pasalis, president and broker of record at Realosophy.com
- “I think the new B-20 rules will become quickly normalized and things should steady out and the market will be into positive, year-over-year territory by fall. Of course interest rates are a total wildcard and could really throw things off.” – Scott Ingram, realtor at Century 21 Regal Realty Inc. and chartered accountant
- “Seems like most lenders are pre-approving buyers without qualifying them under the stress test and willing to hold that rate for 120 days. So we likely won't see the true implications of the stress test until spring/summer 2018.” – Steve Saretsky, realtor with Sutton West Coast and author of Vancity Condo Guide blog
- “Condo demand will take less of a hit than single-family demand, simply because the stress test will force untold thousands into cheaper forms of housing. This will only worsen the affordability pinch in the lower half of the market, at least until condo supply catches up.” – McLister
How will buyers adjust to the new mortgage stress test rules in 2018?