Housing market sentiment has been dented by government policy

Consumers have a more negative outlook on the Canadian housing market and it’s the government’s fault.

That’s a key finding of Mortgage Professionals Canada for its Report on Housing and Mortgage Market in Canada, which reveals that the effects of policy changes including the mortgage stress-test combined with higher interest rates, are denting sentiment.

"We are still seeing a high level of desire in homebuying, especially among young people aged 25-34," said Paul Taylor, President and CEO of Mortgage Professionals Canada. "Whether they will be able to make that purchase may be an entirely different matter."

First-time buyers are struggling to save a down payment, even with help from parents, and many are giving up on the idea of ever owning their own home, the survey shows.

But while the MPC supports some of the government policy changes, the cumulative effect is where they really impact buyers.

"We support a stress test, albeit at a reduced rate of 0.75%, as it is a useful tool to test a borrower's ability to make future payments," commented Taylor. "However, the cumulative impact of rising rates, a 2% or greater stress test, provincial government rules in Ontario and British Columbia, and further lending restrictions are negatively supressing housing activity not just in Toronto and Vancouver, but throughout the country."

Falling prices aren’t the answer
Although falling prices could be expected to add a spark to the market, MPC says this is not shown to be the case historically.

“We have seen historically that this can actually reduce demand," explained Will Dunning, Chief Economist for Mortgage Professionals Canada and author of the report. "Significant price drops put into question the reliability of the market as a whole, causing prospective buyers to fear that values will fall further."

The report shows that the market is responding typically to actual economic conditions but this is being disrupted by the impact of the stress tests and, while the hottest markets may have seen some positives, others have been negatively affected.

"The effects of these policies are especially concerning in areas that are already dealing with economic instability, notably Alberta, Saskatchewan and Newfoundland and Labrador, which are struggling to recover from the oil price shock," said Dunning. "The worsening divide between housing supply and housing demand is further degrading the confidence consumers have in the economy and in housing."


More Mortgage Guide