Photo: James Bombales
Ever since new mortgage rules came into effect on January 1, the Canadian housing market has seen month after month of slumping sales numbers.
But that’s not the only effect the rules have had on the market, or the Canadian economy. Household debt levels have lowered for the first time in years, condo prices have been inching upwards, and it looks like the market could be about to stabilize.
Household debt levels are going down
Canada’s debt-to-disposable income ratio eased from 169.7 to 168 per cent in the first quarter of 2018, according to a new report from Statistics Canada. Canadian consumers borrowed $22.2 billion, down from Q4 2017’s $25.4 billion.
“While the ratio generally tends to fall in the first quarter due to seasonality, the 1.68 percentage point decline marks the biggest improvement on record,” BMO Capital Markets economist Priscilla Thiagamoorthy wrote, in a recent note.
Mortgage borrowing fell to $13.7 billion, the lowest levels since Q2 2014. The drop marks the biggest quarter-to-quarter decline in mortgage debt in 28 years.
“The steeper drop to start 2018 suggests we may finally be at a turning point as the one-two punch of stricter mortgage rules and higher interest rates slow household borrowing while income continues to climb,” writes Thiagamoorthy.
Condo prices are going up
There have been two mortgage stress tests introduced in the last two years and, according to Realosophy president John Pasalis, they may have had some unintended consequences.
“One of the intended goals of this policy was to help cool down the rapid increase in house prices, in particular in cities like Toronto and Vancouver but when we look at the data for Toronto, it actually had the opposite effect for the one house type that was still within reach of most first-time buyers – condominium apartments,” writes Pasalis, in a recent report.
The average price for a GTA condo climbed to $559,343 in April 2018, a 30 per cent increase in just a year and a half since the first stress test was introduced. With buyers unable to qualify for expensive low rise homes, Pasalis writes that a surge of demand has boosted condo prices, pushing them out of reach of many would-be buyers.
“Rather than dampen demand and help cool prices the mortgage stress tests actually inflated demand in the condominium market and caused bubble like appreciation because the stress test pushed many first-time buyer’s budgets down making condominiums the only affordable option for them,” he writes.
The market is stabilizing
Canadian home sales fell just 0.1 per cent in May, after months of serious drops, according to the latest release from the Canadian Real Estate Association (CREA.)
“On balance, this was a better-than-expected report. Sales were effectively flat during the month – their best turnout so far this year,” writes TD economist Rishi Sondhi, in a recent note.
It could be a sign that the market has finally adjusted to the effects of the new mortgage rules.
“Typically, impacts on demand from [mortgage rule changes] tend to be rapid, but also transitory,” writes Sondhi. “History appears to be repeating itself with the May figures pointing to stabilization…Going forward, we expect activity to find support and begin to recover very gradually in the second half of the year.”