A proposal by Canada's banking regulator to expand 'stress tests' for mortgage borrowers will reduce how much house Canadians can afford by up to 21%. And reducing affordability by that much is likely to lead to a 10% plus decline in house prices.
If these new rules are implemented in their current form, the effect of these changes could be significant. When buyers qualify for less mortgage financnig, it puts significant downward pressure on homes prices.
Properties worth more than $1 million will likely be most affected by this change, which means that Vancouver will be one of the most impacted areas.
Canada's federal banking regulator (OSFI), has proposed a 'stress test' for borrowering of uninsured mortgages, where the borrower puts 20% or more down. This follows a new rule introduced last fall which requires borrowers who put less than 20% down to pass a similar test.
About 46% of mortgages outstanding in Canada are uninsured, with a 20% or more down payment. A household with an annual income of $100,000 and a fixed rate 25 year mortgage at 2.84% can afford an house worth up to $726,145 currently. Under the new proposed rules, the same household would be able to afford only $573,791, a reduction of more than $150,000.
How do you feel these changes are going to affect our local home values?