The government’s latest mortgage rule changes have caused an imbalance between supply and demand in almost every region of the country, and will result in an estimated 200,000 fewer jobs being created over the next three years.

Those are among the findings of Mortgage Professionals Canada’s newly released Report on the Housing and Mortgage Market in Canada.

“…the cumulative impact of rising rates, a 2% or greater stress test, provincial government rules in Ontario and British Columbia, and further lending restrictions are negatively suppressing housing activity, not just in Toronto and Vancouver, but throughout the country,” said Paul Taylor, President and CEO of Mortgage Professionals Canada.

Will Dunning, the report’s author and the association’s chief economist, added that aside from the new mortgage lending policies “unduly suppressing” housing activity, consumers are now taking a materially more negative outlook towards housing.

“Our consumer survey has found that sentiment regarding the housing market has shifted decisively downwards during the past year and a half, reflecting the impacts of increased interest rates and government policies that are making it more difficult for potential homebuyers to obtain the mortgage financing they need,” he wrote.

While an increasing number of first-time buyers are receiving down payment assistance from their parents, many young people are adapting to the idea that they may never own a home and will become permanent renters.

The following are highlights from the report:

 

New OSFI Regulations

  • 100,000: The number of Canadians who have been prevented from buying a home by the stress test.
  • 18%: The percentage of prospective buyers, who could currently afford their preferred purchase, who would fail a stress test. Of those affected, the average adjustment needed is $28,750.
  • 32%: The percentage of consumers who would expect the stress test to have significant negative impacts on their ability to buy a home. This increases to 54% for those who aren’t currently homeowners but who expect to buy within the next five years.
  • 29%: The percentage of consumers who would expect to be negligibly impacted by the stress test. This figure falls to 11% for non-homeowners who plan to buy within the next five years.
  • 12.5%: The amount that resale activity in Canada has fallen compared to last year (down 16.5% from 2016).
  • 59%: Percentage of consumers who had been “aware of the changes before today.” (65% for homeowners and 47% for tenants).

 

Housing Market Trends

  • 229%: The percentage increase in average house prices from 1997 to 2017 (or 6.2% per year).
    • This is more than twice as fast as the increase in wages (2.6% per year).
  • 67.8%: The home ownership rate in Canada. This is down from 69% in 2011, and largely a result of the delay for first-time buyers to save up their down payments to make their purchase.

 

Economic Impact of Slowing Housing Activity

  • 120–140k: The reduction in employment that could be expected due to the current forecasted reduction in new home starts and home sales for 2019.
  • 200k: The estimated number of fewer jobs that will be created over the next three years as a result of the mortgage stress test.
  • 2.45: The number of full-time jobs created by each new housing unit started in Canada.

 

Sources of Down Payments – Family to the Rescue

  • 85%: Percentage of down payments that come from personal savings. This figure has been consistent over time.
  • The top sources of down payment funds for homes bought from 2015 to 2018 were:
    • 85%: Personal savings (vs. 92% last year)
    • 39%: Gifts from parents or other family members (vs. 43% from 20142017)
    • 25%: Loan from parents or other family members (vs. 19% from 20142017)
    • 43%: Loan from a financial institution (vs. 27% from 20142017)
    • 38%: Withdrawal from RRSP (vs. 29% from 20142017)
  • The report notes a “remarkable amount of stability” in down payments among first-time homebuyers. The average first-time down payment in the 1990s was 22%, compared to 26% for first-time purchases made from 2014 to 2017.

 

Consumer Sentiment

  • 6.84: The score (out of 10) given by consumers who agree that “low interest rates have meant a lot of Canadians became homeowners over the past few years who should probably not be homeowners.” This score is below the average of the eight previous surveys of 7.00 and the second-lowest ever.
  • 3.54: The score given by consumers who “regret taking on the size of mortgage I did.” This is at an all-time low and below the prior average of 3.80.
  • 7.14: The average score given by Canadians on their confidence on their ability to weather a downturn. This is the highest score in the history of the survey.
  • 6.12: The average score given by consumers who are optimistic about the economy in the year ahead. This is slightly below average, with confidence highest in Quebec and lowest in Atlantic Canada.
  • 75%: The percentage of non-owners aged 25 to 34 who expect to buy a home within the next five years.
  • House price growth: Expectations for growth are highest in Quebec, Ontario and B.C., and lowest in Alberta and Saskatchewan.
  • 67%: The percentage of consumers who expect interest rates to rise. 31% gave a neutral response. The report notes that these expectations have not been good predictors of what will happen to interest rates.

 

Reasons Against Owning

  • 31%: Renting is a better option
  • 29%: I’m comfortable in my current situation
  • 28%: Need more time to save for a down payment
  • 24%: Lack of financial/employment stability
  • 18%: Waiting for home prices to decrease
  • 11%: Living with parents/family is all I can afford

 

Mortgage Renewals

  • The increasing interest rates over the past year are expected to have “negligible” effects on the rate of credit growth.
    • “Most people renewing mortgages this year will be completing a 5-year term, and for most of them their new interest rate will be very close to the old rate.”
  • 3.32%: The average 5-year fixed “special offer” rate for the first half of 2018 (vs. 3.31% in 2013).
  • 2.50%–2.75%: The average 5-year variable rate this year (vs. 2.73% in 2013).