New homes in the GTA are not selling as fast as builders would like. Sales for new homes have hit a 20-year low and the overall sales of all homes fell by 11% in 2018.
The drop in sales has led the home building industry to put pressure on the Canadian government to reconsider the stress test for home-buyers. The stress test currently decreases affordability by requiring a homebuyer to show that they can afford a mortgage under a higher interest rate (2 percent).
Presumably, eliminating the stress test would allow the average Canadian to afford a larger mortgage and thus, increase home sales.
However, interest rates are still low compared to historic levels and are still subject to increase this year.
The drop in sales isn’t quite as bad as the drop in 2008 of -17%. However, it indicates the gradual shift from a seller’s market to a buyer’s market. That means fewer bidding wars, and more favourable shopping conditions for home buyers.
Although the stress test is accurately described as an “artificial influence on the market”, it is meant to protect Canadians from defaulting on their mortgage – which creates rippling costs across the economy.
Reconsidering the stringency of the stress test may be a good idea for the government, but outright elimination seems like a risky fix for slowing sales.