Stressing Over the Mortgage Stress Test
Updated: Dec 10, 2019
Canada’s hot housing market of a couple of years ago is stabilizing, in part thanks to stress test changes introduced in 2018. But the test’s effects have stoked criticism that further changes might be needed.
Benjamin Tal, deputy chief economist at CIBC, describes Canada’s housing market as experiencing “a very healthy adjustment,” and notes that the housing markets of Toronto and Vancouver have slowed the most, which isn’t surprising.
“Those two cities were experiencing significant price appreciation and activity in 2015 [and] 2016,” he said. “Now, we are simply undoing those years in those two cities.”
Most of the slowdown in those two markets can be attributed to gravity, Tal said, because “prices simply reach a point where [they] became totally unaffordable.”
In a report, Tal put the test in context: “In today’s market, you can get a five-year fixed rate of 3.5%, but you must be qualified at 5.5%.”
As such, a critique of the recent stress test changes might be a worthwhile exercise to consider if adjustments are required.
“This is a significant test that is slowing down the market,” Tal said. “And the question is whether or not it’s too much.”