The Canadian Real Estate Association (CREA) reported this month that national home sales fell by nearly 9% from January to February. 75% of local markets, including major cities, recorded fewer transactions. This is not the first time a steep month on month decline has been reported. In January 2018, home sales dropped when the mortgage stress test came into effect. However, activity in February has not been this low since 2009.

Year over year home sales were down 4.4%, thus making this month nearly 12% below the February average over the last 10 years. In Alberta, British Columbia and Newfoundland, sales were below their 10-year average by more than 20%. According to CREA chief economist Gregory Klump, home sales in February declined across a broad swath of larger and smaller Canadian cities. Klump also stated that the housing sector is on track to further reduce waning Canadian Economic Growth. “Only time will tell whether successive changes to mortgage regulations went too far, since the impact of policy decisions becomes apparent only well after the fact. Hopefully policy-makers are thinking about how to fine-tune regulations to better keep housing affordability within reach while keeping lending risks in check.”

The new mortgage regulations are largely blamed by CREA for the slow housing market. Since January 2018, borrowers had to qualify for a loan at least 2% higher than their contract rate. This policy was intended to reduce interest risk, amid reports that Canadians are one of the most indebted in the world. The debt to income ratio was around 177%. Majority of which are due to mortgages.

The federal bank regulator felt Canadians were financially unprepared for interest rates to rise, as they were on track to do, which could pose a serious risk to the economy. If Canadians spend all their income paying up mortgages, it gives them less to spend on consumer goods, the main driver of the economy. This means that many people who would otherwise qualify to buy a home are now pushed to less expensive options, spend more time saving or are forced to turn to credit unions or private lenders who are not bound by the same mortgage regulations.

The stress test was to keep prospective home buyers who could not afford paying back a mortgage out of the market. Even though it has, realtors, sellers and borrowers who are desperate to own a home are not pleased with this regulation.

“For aspiring home-buyers being kept on the sidelines by the mortgage stress test, it’s a bitter pill to swallow when policy-makers say the policy is working as intended,” said CREA President Barb Sukkau. “Fewer qualified buyers means sellers are affected too.” Moreover, home prices fell along with sales, declining 5.2% to nearly $468,000 year over year. Excluding the expensive Toronto and Vancouver markets reduces the national average to nearly $371,000.

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