The Stress Test: Who should stress and why?

This week Finance Minister Bill Morneau announced Ottawa’s intent to conduct a 'stress test' on the countries real estate market in hopes of ensuring homeowners are capable of carrying their mortgages if the rates were to jump.  The decision was made in the wake of a bolstered market that has seen cities like Toronto and Vancouver experience record growth in a very short period of time. 

What is changing?

Buyers will now need to qualify for their mortgage based on posted bank ratesregardless of whether they choose a long term fixed rate or not.  As a result,buyers will no longer be able to qualify for as big a mortgage.  

When does it change?

The new regulations will be in place beginning October 17th.  Any mortgage application after this date will be subject to the new rules. 

How will it affect buyers?

Simply said, buyers will not qualify for as much as they can right now.  In particular, Woodstock's local buyers, first time buyers especially, are going to find it harder than ever.  Hypothetically, those currently qualifying for a $200,000 mortgage today will only have $160,000 available to them, post October 17thdeadline.  In addition, the presence of prospective buyers coming from the east [Kitchener, Waterloo, Milton, Mississauga, Toronto, etc] will continue adding a layer of competition to the market.  Possibly less than we are seeing today but still enough to put local buyers at a disadvantage.      

How will it affect sellers?

It doesn't take much to understand that if buyers don't have as much money available to them, that sellers will not receive as much.  That said, in Woodstock we are seeing a lot of buyers coming from the East.  This rule should keep them coming as buyers in those markets will be further removed from purchasing houses locally and will continue looking towards Woodstock's lower prices.  This is not to say that there will be no negative affect to Woodstock sellers but there is a good chance that it will be minimized by the continued presence of out of town buyers.  Lets face the facts, we are growing at unprecedented rates right now.  I believe that we will continue to grow but probably in a more balanced fashion.    

Actionable Intel

If you're buying...

If you're an active buyer you have two options.  The first, would be to find a property, purchase it and have your mortgage application submitted prior to October 17th.  The second, is to go back to your mortgage broker or advisor and get pre-qualified again and then continue looking for a house based upon your new budget.  

If you're selling... 

Once again you have the option to hurry.  Buyers today will have access to more funds then they will on October 18th.  As a result, they will be able to pay more for your house.  Not that they necessarily will.  Moving forward, you and your agent will need to pay close attention to the market conditions after rules change.  I wouldn't make any rash decisions to slash your asking price right away but I would be prepared to adjust if need be.  There may be a feeling-out process as mortgage advisors will have to reestablish their feel for each lender that they work with.  

In addition, if you're a seller that is receiving an offer, and especially when receiving multiple offers, it is now going to become more important than ever that your agent asks some very important questions when dealing with the buyer or their agent.  Questions like...  Who is your lender?  Is the lender local?  Have the buyers submitted all of their necessary documents to the lender or is the pre-approval based just on their word? These types of questions have always been important but now, possibly the most important question becomes:  When was the buyer pre-qualified?  Make sure this question is asked because you might as well find out you don't have a deal today rather than ten days from now, once the buyer finds out they are no longer qualified to purchase your property.  This becomes even more critical when dealing with multiple offers.  Just because one offer looks better due to an extra few bucks or a nice closing date won't mean anything if the buyer can't satisfy their condition on financing to firm up the deal.  In a case like this, sometimes you are better off taking a slightly inferior offer that comes from a solid, qualified buyer and it can often be as simple as asking some key questions up front.  

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Devon Young

Devon Young

CENTURY 21 Heritage House Ltd., Brokerage*
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