TRREB calls for changes to mortgage regulations as borrowing costs impact GTA resale market

The GTA resale market showed signs of returning to healthier conditions in August, though the Toronto Regional Real Estate Board (TRREB) warns that higher borrowing costs could further impact performance.

TRREB reported 5,627 home sales in August 2022, representing a year-over-year dip of 34.2 per cent – a lower annual rate of decline compared to the previous four months. The August sales result also represented a month-over-month increase compared to July.

Longer amortizations

Sales represented a higher share of new listings compared to the previous three months. If this trend continues, it could indicate some support for selling prices in the months ahead, TRREB says. On a year-over-year basis, the MLS Home Price Index (HPI) was up by 8.9 per cent, and the average selling price for all home types combined was up by 0.9 per cent to $1.07 million. The average selling price was also up slightly month-over-month, while the HPI Composite was lower compared to July. Monthly growth in the average price versus a dip in the HPI Composite suggests a greater share of more expensive home types sold in August.

“While higher borrowing costs have impacted home purchase decisions, existing homeowners nearing mortgage renewal are also facing higher costs,” says TRREB President Kevin Crigger. “There is room for the federal government to provide for greater housing affordability for existing homeowners by removing the stress test when existing mortgages are switched to a new lender, allowing for greater competition in the mortgage market. Further, allowing for longer amortization periods on mortgage renewals would assist current homeowners in an inflationary environment where everyday costs have risen dramatically.”

Removing the stress test

“The Office of the Superintendent of Financial Institutions (OSFI) should weigh in on whether the current stress test remains applicable,” adds TRREB CEO John DiMichele. “Is it reasonable to test homebuyers at two percentage points above the current elevated rates, or should a more flexible test be applied that follows the interest rate cycle? In addition, OSFI should consider removing the stress test for existing mortgage holders who want to shop for the best possible rate at renewal rather than forcing them to stay with their existing lender to avoid the stress test. This is especially the case when no additional funds are being requested.”

“There are other issues beyond borrowing costs impacting housing affordability in the Greater Golden Horseshoe,” says TRREB Chief Market Analyst Jason Mercer. “The ability to bring on more supply is the longer-term challenge. However, we are moving in the right direction on this front. The strong mayor proposal from the province, coupled with the recent commitment from Toronto Mayor John Tory to expand ownership and rental housing options, are examples of this. TRREB looks forward to hearing additional initiatives from candidates vying for office in the upcoming municipal elections.”