Stop Blaming the Mortgage Stress Test!
We’re getting a little tired of the constant whining about the Stress Test on social media and how it has destroyed real estate. It’s exhausting. Realtors, bankers, brokers, etc., need to step back and focus on what’s best for the client, first and foremost.
Prices have skyrocketed and have become harshly unattainable to locals in many markets across the country. A slowdown in the market and a correction in prices would be painful in the short term; particularly, for commission based professionals, however, would be better for consumers and ultimately everyone (commission based and not) over the long term.
Lower prices translate into increased affordability and a more sustainable property market, economy and overall community. Mortgage underwriting practices have flirted with both extremes over the last 10-15 years. Consistency, naturally, would have been the most effective strategy, granted that’s hard to achieve when people have their money goggles on.
The Stress Test Is An Easy Scapegoat
The Stress Test is an easy scapegoat, without a doubt. But, it’s not the cause of the current slowdown. In fact, its impact pales in comparison to other factors. Canadian real estate has been on an unsustainable tear over the last decade because of financial innovation, the interconnectivity of financial markets, globalization, foreign investment, sub prime lending, migration, micro and macro economic forces, loose underwriting, and so forth. You can’t single out the Stress Test – it makes no sense.
Clearly, as a mortgage brokerage, we want people to get more mortgages too. After all, that’s how we make money, pay our staff, and feed our families! But, without the Stress Test, marginal borrowers are basically a ticking time bomb. They are hyper sensitive to any nominal fluctuation upwards in rate – and rates have been extremely low for a long time. Trust us, we want people to qualify too, it’s just we want to see it done properly and in a sustainable fashion. Wouldn’t you rather see lower prices, healthier markets and actual affordability?