Feb
08
Buying

Stress Tested Out

Stress Tested Out

So what exactly is going on in the Toronto real estate market? Well, it’s complicated. Essentially, we are now in a ‘balanced market’ after being in a ‘seller’s market’ for a good long run. Prices are no longer increasing at astronomical rates as they had been. In fact, the market for mid-priced and luxury homes has levelled, even dropping off in some of the more affluent neighbourhoods. This has been good news for some buyers wanting to trade up from a starter home. But, that doesn’t mean things have become easier for all buyers. Because of the mortgage stress tests that were mandated by the Office of the Superintendent of Financial Services (OFSI) in 2018, potential buyers now have to qualify for monthly mortgage payments 2% over the mortgage rate, approximately $700 higher than the cost of the average loan.

Sitting on the Real Estate Sidelines

Introduced in an effort to cool the overheated real estate market, the stress tests along with other factors such as higher interest rates, have succeeded in calming the market frenzy. It has also pushed more buyers into lower priced homes such as condominiums. Others are waiting on the sidelines to see if more properties will be coming on the market. We aren’t seeing as many bidding wars as in the past few years, so this should ease some frustration for buyers who’ve lost out on bids. At the same time, some sellers are showing concerns that their home may be harder to sell or that they won’t sell for as much as they would like. Many are deciding to put off the sale for now. The reality is that anything priced well will sell.

Possible Reevaluation of the Stress Tests

Just this week the Canadian Mortgage and Housing Corporation changed the overvaluation rating for Toronto from high to moderate. The rating measures the ratio of population growth to personal disposable income and interest rates. Also happening this week, the Toronto Real Estate Board, Mortgage Professionals Canada, and the major banks, have all urged OFSI to reevaluate the stress tests, deeming them outdated. The industry lobbyists stated that the tests are suppressing home buying which can potentially affect the broader economy. In response, OFSI has stated that it does monitor the financial environment and makes adjustments to the guidelines when warranted.

What does this mean for Buyers and Sellers?

We’ll have to wait and see what decisions are made. Without a crystal ball no one can say for sure. However, many experts are predicting that the spring market will bring more buyers out of hibernation, which will be good news for sellers. The good news for buyers is that they won’t likely face the crazy competition that they did in the past.

If you’d like more information about the Toronto Real Estate Market please get in touch.

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