Homeownership is getting harder for first-time buyers in Canada. There is no doubt about it.
We’ve been having a lot of conversations with people regarding the new stress test. We thought we would share those thoughts with you.
Saskatoon Real Estate
The Saskatoon real estate market has seen soaring prices. A few bidding wars, and a lack of supply throughout the pandemic. Houses priced in the $500K range were hard to get.
Now, the concern is, some home buyers may be stretching their mortgage budgets to the max. This is why a new mortgage stress test came into effect on June 1, 2021.
The new stress test rules reduce the buying power for home buyers. They are meant to protect people in the event that interest rates go up. This protects them from potentially cooling the Canadian housing market, which has seen record prices this year.
Purchasing Power With The New Stress Test
If you qualified for $500,000 under the current minimum qualifying rate of 4.79 percent, that amount is now reduced to $479,000 under the new qualifying rate of 5.25 percent.
Yes, you read that correctly, you lost $21,000 of purchasing power or 5% of purchasing power on June 1st.
Does The New Stress Test Help Most Canadians:
Yes and no.
The reality is – if you were trying to get into the market as a first-time buyer and you needed $400K to purchase a home, you just lost about 5% of what you could have owned. This has made it harder for first-time buyers to get into homes.
For those people who are overleveraged and spending more than 30% of their income on their homes, the stress test could be a great way to save them from problems later down the road.
However, the stress test does nothing to stop families from buying multiple properties if they are buying in cash. The stress test does nothing to slow down purchases of homeowners who HELOC their current homes and get a second property. The stress test really only hurts those already trying their best to get a downpayment and get into a home.
As always, if you need help buying or selling your home do not hesitate to reach out to Gregg Bamford or Ryan Bamford.