A year and a half after federal policymakers toughened up qualification rules to tame an unruly market and reduce risk to the economy, Canada’s mortgage market is showing signs of recovery.
Scotiabank Economics notes that Canadian household mortgage credit grew 4.6 percent in May compared to April, on a seasonally adjusted basis, marking the biggest such gains since November 2017.
That’s consistent with what James Laird, the co-founder of rate-comparison website Ratehub has been seeing and expects to continue.
“After a pretty slow start to 2019 — January and February were very quiet — as we got into the spring market, things continued to pick up, and you can feel the momentum building,” he tells Livabl.
While mortgage stress tests introduced in January 2018 mean that uninsured mortgage applicants have to qualify at a rate 2 percentage points above the contract rate, mortgage rates have fallen from near eight-year highs recorded near the end of last year.
“Something that’s helping a lot is rates continue to drop,” says Laird, who says at 2019’s start, rates for five-year fixed mortgages (the most popular kind in Canada) were around 3.3 to 3.4 percent. Today, the lowest rate available is 2.54 percent from CanWise Financial, a Ratehub company.
When the lowest available five-year fixed-rate posted on Ratehub sunk to 2.64 percent early last month, it was a two-year low.
“That certainly helps ease the burden of the stress test,” notes Laird.
Laird estimates the stress test reduces affordability by about 20 percent, so although lower rates are helping, some homebuyers are also renting for longer or lowering their expectations. “We also see lots of help from family in the form of a gift to help them purchase the house that they are planning on purchasing.” he says.
However, economist Will Dunning suggests the month-over-month growth in mortgage credit this May obscures the main story, one of a market that is still depressed from previous years.
“[T]here really wasn’t very much change during the month,” he tells Livabl via email.
“This small rise can be attributed to the small rises in resale activity that have occurred recently. The big picture is still that growth of mortgage credit has slowed sharply.”