The extension of a mortgage stress test to all homebuyers, including those with larger down payments, has had an effect on the level of sales in Greater Victoria say local finance and real estate professionals.
The new rules created by the Office of the Superintendent of Financial Institutions went into effect Jan. 1 and set a new minimum qualifying rate or “stress test” for uninsured mortgages. The new borrowing rate must be the greater of the five-year benchmark rate published by the Bank of Canada, or the contractual mortgage rate plus two per cent.
“In real terms those rules meant that those people trying to qualify for a mortgage were suddenly qualifying for 18 per cent less that they would have before January,” explained Andy Vickers, a mortgage professional with The Mortgage Group in Victoria.
“When you combine that financial pressure with the fact that inventories are still down in Victoria, it isn’t surprising that sales have declined.”
The latest Victoria Real Estate Board figures show 9.8-per-cent fewer sales were transacted in January than for the same period last year, when 478 properties were sold.
The sales of condominiums in particular fell 30.6 per cent from last year, when 118 were sold. That compares with the single family homes sales drop of four per cent from last January.
“We expected January to be a bit slower after the increase in activity we saw in November and December,” said board president, Kyle Kerr. “Which was likely due in part to buyers entering the market early to avoid the new mortgage stress test.”
The full effect of the new rules has yet to be seen, he added, “as many people attained a 90- to 120-day pre-approval before [Jan. 1]. We won’t know how much that stress test will affect the spring market until we see the numbers, and spring is also the time when sales traditionally pick up.”
But Tara Hearn, a real estate professional with Century 21, Queenswood Realty Ltd. in Victoria, said she hasn’t personally worked with anyone whose plans to enter the market were derailed by the new qualification rules.
“I think it has less to do with the rates than it has with the lack of inventory in Victoria,” she said. “If you look at the sales of condos, for example, there just is very little out there on the market. A lot of new stuff is coming on, but it’s not ready yet and there’s definitely a lot more needed.”
Hearn explained that while there are homes still available at the high end of the market, the number of homes for sale in the middle price points are at a premium.
At the same time, she acknowledged, it’s likely the new mortgage qualification rates will have some effect. “Victoria is an expensive market and (with the new limits on mortgage qualifications) people are going to have to adjust their expectations.”