Posthaste: Record-high mortgage stress test puts homes out of reach for more Canadians

financialpost.com:

Home prices have fallen in Canada, yet at the same time buying a home is becoming more unaffordable.

So how does that work?

Rising mortgage rates, and thus higher qualifying rates under the mortgage stress test are increasing how much income Canadians need to buy a home even as prices weaken in most markets, says a new report from rate comparison site Ratehub.ca.

Home affordability declined in all of the 10 cities studied in the analysis which was based on monthly real estate data between August and September from the Canadian Real Estate Association.

Rising five-year bond yields that have hit highs not seen since 2007 are pushing fixed mortgage rates steadily higher, said the report. The prime rate has climbed to 7.2 per cent as the Bank of Canada raised its benchmark interest rate to 5 per cent.

Ratehub.ca says between August and September the average mortgage rate increased from 6.22 per cent to 6.33 per cent, meaning that many mortgage applicants are now being stress tested at 8.3 per cent or higher.

Canada’s mortgage stress test, introduced in 2016, requires borrowers to qualify at a rate of 5.25 per cent or the lenders’ offer plus two per cent, whichever is higher.

“The stress test is the highest it has ever been, exceeding the high water mark that was set last month,” says James Laird, co-chief executive of Ratehub.ca and president of CanWise mortgage lender.

“Home values dropped in all 10 cities we looked at, yet still became less affordable. August to September data highlights how impactful even a minor rate increase is on affordability.”

The mortgage rate increase was enough to decrease affordability for the average buyer in markets across Canada, said the report.

Vancouver residents saw the biggest rise.