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How is Mortgage Fraud & Stress Test Impacting First Time Buyers?

The Canadian housing market maintains its road to recovery as national home sales continue to increase. Today’s news article discusses the rise in home prices, mortgage fraud, and stress test. Find out what the current buzz in Canadian real estate from a real estate expert.

Latest on Canadian Real Estate Market Trends by Steve Saretsky

Happy Monday Morning!

No pre-election jitters for the Canadian housing market, which continued its recovery in the month of September. National home sales increased 15.5% year-over-year in September and are now tracking slightly above ten-year averages.

The increase in housing activity has been largely telegraphed through a noticeable increase in residential mortgage credit growth, which has been accelerating since April. The pace of growth remains very weak, however residential mortgage credit is actually growing faster than it did prior to the B-20 mortgage stress test. Meanwhile, election platforms are promising a relaxation of credit just as home prices are once again drifting higher.

After contracting for five straight months, national home prices rose 0.5% from last month and 1.3% year-over-year. This comes on the heels of another IMF (International Monetary Fund) report which suggests Toronto home prices are 54% above fundamentals, and Vancouver home prices are 51% above fundamentals. Fundaments, which have been largely ignored for over a decade, is considered as the price of a home-based on long-term demand factors, and what the market can continually support paying through recession, upturns, and downturns.

Fundaments aside, the housing market continues to hum along, partially enabled through a growing chorus of Canadians who feel mortgage fraud has become simply the cost of entry. According to a survey from credit giant Equifax,  the survey found millennials are almost twice as likely to lie about their annual income versus the general population (23 percent versus 12 percent).

“It’s concerning that so many younger adults we surveyed believe it’s OK to inflate their income to purchase the home they want,” says Julie Kuzmic, director of consumer advocacy at Equifax Canada. “Fudging income numbers when completing a mortgage application is a fraud. It also becomes a slippery slope for these people who may end up stretching themselves too thin.”

Further, the study found 48% of respondents said the government should relax the mortgage stress test for those buying for the first time. While approximately 47% of those surveyed think the mortgage stress test should be relaxed for all home buyers, and 38% of those surveyed agree that the federal government should eliminate the stress test entirely.

Tighter credit standards be damned, Canadians may just get their wish following election night. Happy voting.

Three Things I’m Watching:

1. After contracting for five straight months, national home prices have begun inching higher once again.

2. How much have prices drifted away from fundamentals? Per the IMF here’s the percent difference between observed prices in Q3 2018, versus attainable fundamental prices by market.

3. On a 3 month annualized basis residential mortgage credit growth is accelerating faster than before the B-20 mortgage stress test. This suggests Canadians have adapted to the rule changes.

 

 

Steve Saretsky profile picture

About Steve Saretsky

Steve Saretsky is a Vancouver Residential Realtor and author behind one of Vancouver’s most popular Real Estate Blogs Vancity Condo Guide. Steve is widely considered a thought leader in the industry with regular appearances on BNN, CBC, CKNW, CTV and a contributor to BC Business Magazine.

For more expert insights on the real estate market and trends, visit Saretsky’s website at www.stevesaretsky.com

Steve Saretsky
[email protected]
604-809-8149