Homebuying activity in Canada is on the rise as the market absorbs the impacts of tougher mortgage rules brought into effect in 2018.
In August, Canadian home sales were up 5 percent annually and 1.4 percent compared to July, according to the Canadian Real Estate Association (CREA).
“The mortgage stress-test has eased marginally and that’s helped some potential homebuyers,” says Jason Stephen, CREA’s president, in a statement.
“But the extent to which they’re adjusting to it continues to vary by community and price segment,” Stephen continues.
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This July, and for the first time since 2016, the Bank of Canada’s benchmark rate — an average of the Big Six banks’ posted mortgage rates — fell.
This was a small but significant change.
As per the 2018 changes to the mortgage qualification process, uninsured mortgage applicants must qualify for their loans at either the benchmark rate a rate that is 200 basis points above what’s on contract — whichever is higher.
With sales activity picking up, prices look like they’ve bottomed out on the national level. The benchmark price of a Canadian home was $626,200 last month, an increase of 0.95 percent from a year ago. Prices were up 0.82 percent from July.
Although some homebuyers have benefitted from lower mortgage rates and an easing benchmark rate, the impact has not been felt equally across the country.
“The recent marginal decline in the benchmark five-year interest rate used to assess homebuyers’ mortgage eligibility, together with lower home prices in some markets, means that some previously sidelined homebuyers have returned,” says Gregory Klump, CREA’s chief economist, in a statement.
“Even so, the mortgage stress test will continue to limit homebuyers’ access to mortgage financing, with the degree to which it further weighs on home sales activity continuing to vary by region,” he adds.