Tougher Mortgage Rules Check Toronto Buyers, Not Surging Prices

(Bloomberg) -- Tougher mortgage regulations continue to have a dramatic effect on home-buyers in Canada’s biggest city, but they haven’t managed to curb price gains that are forecast to surge nearly 10% this year.

Canada’s banking regulator imposed tougher underwriting rules in January 2018 that forced buyers to show they can handle payments at 200 basis points above the contracted rate.

More than half of those intending to buy a home during 2020 said they have been affected by the mortgage stress test and changed their house-hunting strategies as a result, according to a survey released by the Toronto Regional Real Estate Board on Thursday. The most common response was for them to reduce their price point or change the type or location of the house they want to buy.

Gains Ahead

The rule change was “difficult for a lot of would-be home buyers, and some of them took a step back,” Jason Mercer, chief market analyst for TREB said at the board’s annual outlook event. “I’m not saying that they took a step back from the notion of buying a home -- their goal was still to purchase a home -- but the timing wasn’t right.”

Some have turned to alternative lenders, such as credit unions or the secondary lending market, the report said. The stress test applies only to those applying for mortgages from federally-regulated lenders, such as the major banks.

Stress test or not, those hunting for homes will need to stretch a little bit more to buy in Canada’s most populous city this year. The real estate board is forecasting the average selling price this year will be C$900,000 ($677,200), an increase of nearly 10% compared to the average of C$819,319 reported for 2019.

©2020 Bloomberg L.P.

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