The data shows that young Canadians are the most affected by mortgage qualification policy changes – and it’s time for mortgage brokers to do something about it, writes Paul Taylor
by Paul Taylor
Mortgage Professionals Canada recently issued a report on the residential mortgage market, which was created by surveying the opinions of over 2,000 Canadians. The good news is that, by a very large margin, Canadian homeowners are happy with their decisions to buy their homes. For those who regret the decision to buy, the regrets are more about the particular property purchased (7%) rather than about homeownership in general (4%). This pattern holds for both recent buyers and those who purchased earlier.
The not-so-good news includes the news that stress tests have exacerbated the slowdown in the Canadian housing market that usually accompanies higher interest rates. The resale housing market was depressed at the end of 2018, and we do not expect an imminent recovery to normal levels.
Meanwhile, rental vacancy rates have diminished (since fewer people can buy, more people require rental accommodation), and rental costs are increasing faster than wage growth. Housing starts are following the trend seen in the resale sector and have begun to move downwards. That slide will continue during 2019 and into 2020.
The market data clearly shows that the young middle-class Canadians are the most affected by mortgage qualification and insurance eligibility policy changes. Some policy changes are required to assist the long-term economic health of this primarily millennial cohort. The reduction in housing starts is also an early indication of possible unemployment increases as construction professionals see less need for their skills in the coming months. Housing starts are generally a lagging indicator of housing activity, and as housing transaction fall, new supply begins to reduce accordingly. This only makes the issue of housing affordability more acute in regions like Toronto and Vancouver.
Fortunately, Finance Minister Bill Morneau publicly stated on January 22 that housing affordability for millennials is a priority focus for the government. At the time of writing, the actual measures that will be implemented have not yet been revealed, but we must nonetheless be encouraged by this public stance.
Mortgage Professionals Canada has been asking the government for some common-sense adjustments to the stress tests for some time. Given the housing activity slowdown, the increase in the overnight rate and the market dynamics creating considerable pressure on the young middle class, a reduction is overdue. It is also the right time to reintroduce insurance on 30-year amortizations for first-time buyers. Such a move would not overly stimulate markets and would improve the economic position of these buyers, strengthening Canada’s economy in the future.
Regardless of your political affiliations, I encourage you to get involved in the election process. If we as a community want to see change, we have to make our desire for change known. Here is my call to action to you: First, find out who the candidate is for your chosen party in your riding and book an appointment to talk to this candidate about the housing market. At the meeting, outline the challenges the current policies are creating for the marketplace and clearly state our desired changes: a reduction to the stress test, 30-year amortizations for first-time buyers and encouraging housing supply in the private market – more people in homes they can afford will reduce the strain on government-supported affordable housing.
Perhaps the most important part: make a donation to the candidate. I recommend $300 or $400. You will receive 75% back on all donations under $400 with your tax return. Your actual cost will be a maximum of $100.
If four or five industry members do this for each candidate in each riding, our issues will make the policy platform for all parties. The candidates will receive consistent messaging, and the collective financial support will reinforce attention to our issues. During an election campaign, candidates are much more likely to champion the issues of those who support them – and support them financially.