April 9, 2021 | Pressure on OSFI to Cool Canadian Property Market
Danielle Park Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book Juggling Dynamite: An insider s wisdom on money management, markets and wealth that lasts, and a popular daily financial blog: www.jugglingdynamite.com
The Office of the Superintendent of Financial Institutions (OSFI) will launch a new consultation on the stress test Thursday with the goal of determining whether changes are needed to the framework that dictates whether or not borrowers can qualify for a loan.
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Graeme Roy/The Canadian Press
Home buyers will see their purchasing power shrink slightly under Canada’s new mortgage stress test, but experts caution the stricter rule will have little effect on runaway home prices.
The Office of the Superintendent of Financial Institutions (OSFI) plan for uninsured mortgages, announced Thursday, would effectively require borrowers to prove they can make their mortgage payments at an interest rate of 5.25 per cent, up from 4.79 per cent.
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Almost as soon as it was announced, the Canadian government’s first attempt to rein in the country’s pandemic housing boom was dismissed as not enough.
Canada’s banking regulator signalled its intent Thursday to take a small step by tightening qualification rules for uninsured mortgages, worried that low interest rates will put new home buyers too far into debt. The move will effectively reduce by about 4 per cent the size of mortgages households will be eligible to take.
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Canada’s largest city accounts for a disproportionate slice of its economy, primarily because of its housing sector. Toronto real estate has had over 20 years of uninterrupted price gains. The market remained steady throughout last year’s crisis and has now gone parabolic.
However, regulators and the government seem to be stepping in to cool the market. If this lowers prices or triggers a correction, several major banks and real estate investment trusts (REITs) could be caught in the downfall. If you’re wary of this risk, here are the trends you need to watch.
Toronto real estate regulations
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But is that what the true goal is here? To save buyers from themselves? If so, we should probably to take a closer look at who is actually driving this wild market.
Hint: it’s not first-time buyers.
It’s people flush with equity in their current homes who want to take that equity and move on up. Will asking them to qualify at a marginally higher rate do much to take the wind out of those sails? Seems unlikely.
You know who will very much be impacted by this proposal? Those very same first-time buyers we’re supposedly trying to save from themselves.