September 24, 2020

Mortgage stress test is going to cause more than a ‘dip’ in the Canadian housing market: RBC

Canadian home sales have been falling on a year-over-year basis ever since a new mortgage stress test was implemented in January. And while many industry watchers had predicted the market would start to recover in spring, one economist says things may stay cool for awhile longer.

“It increasingly looks like the new stress test is causing more than just a temporary dip in housing market activity in the greater Toronto and Vancouver areas,” writes
RBC senior economist Robert Hogue, in a recent note.

Last month, sales were down 22.2 per cent and 35.1 year-over-year in Toronto and Vancouver, respectively. But there’s a reason that May’s year-over-year numbers are looking so dire, and it has everything to do with regulations that came into effect this time last year.

And while the market is taking longer to correct than originally predicted, Hogue writes that he isn’t worried about the current state of affairs.

“We aren’t overly concerned by what is becoming a more extensive market correction in two of Canada’s largest markets,” he writes. “At this stage, we still believe that neither is in a death spiral. Despite sharply lower levels of activity, demand-supply conditions (as depicted by the sales-to-new listings ratio) remain balanced.”


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