For the first time since 2016, the Bank of Canada has lowered the rate that mortgage stress tests use to determine qualifying for purchasing a home – and it’s a good news story! The five-year benchmark qualifying rate was 5.34 per cent, and is now down to 5.19 per cent, meaning more people will be able to purchase homes, or purchase larger homes than they anticipated, to the tune of $4,000 more.
The stress test has been a highly contentious issue that has hurt the real estate industry on many levels, especially for first-time and move-up buyers. Perhaps the only ones not affected are the Right‑sizers who are traditionally not borrowing, or borrowing less. The initial stress test ruling did soften home sales across the country, which was its goal. Many people who would have bought homes sat on the sidelines waiting for relief – which is now in sight.
New condominiums have been less affected by the test, especially in the Greater Toronto Area, where sales are strong after the temporary slowdown in Q1 2019. Sales exploded in April and May, and according to the June Altus Group statistics from BILD, condo sales were up 14 per cent from 2018 and only 5 per cent below the 10-year average. In addition, the benchmark price of new condos increased slightly from May. Even at the higher stress test levels, people have been finding ways to purchase new condominiums.
It seems that we have a good news story all around. Now, if we could just get the Bank of Canada to restore 30-year mortgages!