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Canadian authorities left the benchmark for the country’s mortgage stress test unchanged on Friday, despite growing concerns about a red-hot housing market that shows no sign of cooling.
The Office of the Superintendent of Financial Institutions (OSFI) said the minimum qualifying rate for uninsured mortgage borrowers will stay at 5.25%, This makes the benchmark either the rate the borrower pays plus 200 basis points, or 5.25%, whichever is greater.
Uninsured borrowers are required to make at least a 20% down payment.
Canada‘s Finance Department said separately it too will leave the rate unchanged for insured mortgages, which fall under its purview.
The S&P/TSX banking index fell 0.4% on the Toronto Stock Exchange, compared with a 0.3% increase in the broader benchmark.
Since June 1, when OSFI began enforcing the current minimum rate in response to increased vulnerabilities, including rising home prices and household indebtedness, the national average sale price has increased 3.5%.
Canadian house prices are up nearly 20% from a year ago, setting a record in November, exacerbating affordability concerns and stoking fears of a bubble.
“Our government is keenly aware that rising housing prices are a real concern, especially for middle-class Canadians hoping to buy their first home,” Finance Minister Chrystia Freeland said in a statement. “Maintaining the current minimum qualifying rate will ensure prudent underwriting standards for insured mortgages.”
Ben Gully, assistant superintendent of OSFI’s regulation sector, acknowledged that rising household indebtedness resulting from surging home prices is a “significant vulnerability to lenders and the stability of Canada‘s financial system,” and said the regulator continues to monitor risks.
Residential mortgage credit risk has risen only modestly and higher loan-to-income ratios have been supported by extremely low rates, OSFI officials said on a media call.
More than 90% of mortgage borrowers are stress-tested at the 5.25% rate, they said.
James Laird, co-founder of mortgage comparison website Ratehub.ca, said the qualifying rate is still about 2.5 percentage points higher than the best home loan rates available.
“The only reason to push it higher would be if they’re forecasting inflation will push rates significantly higher by the time mortgages are up for renewal in five years,” which is not what the Bank of Canada is forecasting, he said.
Although more than half of new loans in recent months have been variable-rate mortgages susceptible to interest rate increases, about three-quarters of total outstanding mortgages in Canada are fixed.
“If and when posted rates rise, such that the formula creates an average higher than 5.25%, the (minimum qualifying rate) will rise naturally,” Laird added.
(Reporting by Nichola Saminather; Editing by John Stonestreet, Chizu Nomiyama, Paul Simao and Dan Grebler)
Canada’s Real Estate Bubble Is So Big Even The Mother of All Crashes Can’t Fix It – Better Dwelling
Lack of listings pushes Alberta real estate into a sellers' market – Calgary Herald
Amid the success of the real estate market is a sore spot that could drive up prices more than expected, and that’s low inventory in the coming year, according to one national realty firm.
While the pinch of low supply is most acute in larger centres like Toronto and Vancouver, Alberta is also “feeling the inventory pinch,” says Rachel Rehkopf, spokesperson for Zoocasa Realty Inc. in Toronto.
She points to December total sales rising by 27 per cent in Alberta while new listings remained stagnant.
That “pushed the entire province into sellers’ market conditions.”
The province sits at 2.5 months of residential inventory. That essentially means if no new homes came to market over the next two and a half months, and current demand for housing continues, Alberta would have no more homes for sale.
It’s a scenario that’s unlikely to happen, of course, and the overall supply-demand picture is better in Alberta than other parts of the country, she adds.
In Ontario, for example, supply is 0.6 months while the metric is 1.7 months in British Columbia.
Yet Alberta’s supply is significantly lower than last year when it had four months of supply, she says.
Calgary is the tighter of the two large markets in the province with only 1.5 months of supply, while Edmonton actually added new listings in December, growing by about 10 per cent, year over year. Still, sales in Edmonton outpaced new listings, resulting in a 14 per cent decrease in inventory.
Overall, high demand in both cities paired with continuing low supply will likely drive prices higher in the year ahead, she notes.
Welcome to Real Estate Friday! – theberkshireedge.com
Here’s what we have for you this week in The Edge Real Estate section:
- Property of the Week – Janet Kain of TKG Real Estate offers the opportunity to live in a stunning home, lovingly cared for and perfectly located for year-round enjoyment of the Berkshires.
- Transformations – Designer Jennifer Owen and her clients imagined a calming space to relax while listening to the Boston Symphony Orchestra Live from Tanglewood on the radio!
- Weekly real estate transactions for Berkshire County, Northern Litchfield County and, now, Columbia County
- Market Perspective – Updated this week: The 2021 year-end real estate report from the Berkshire Board of REALTORS. What does it tell us?
- The Self-Taught Gardener – How does Joan Didion’s approach to life and to her art inform our Self-Taught Gardener on how to garden?
- Gardener’s Checklist – The holidays are over and the winter doldrums have set in. What’s a gardener to do to lift his spirits in these dark days?
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