With 2017 mortgage pre approvals having now expired, the first wave of buyers facing OSFI’s ground breaking mortgage regulations are being put to the test. The regulations, also known as B-20, require all borrowers to pass a stress test at an interest rate 2% higher than the qualifying rate.

Early symptoms appear rather obvious. National home sales slid for the month of March, falling 23% year over year, and pushing the average sales price down 10%. Overall, it was a bearish quarter for Canadian housing, first quarter sales slipped 16% year over year.

Canada home sales Q1
Canadian homes sales Q1

Much of the declines were felt in the single family housing market in Vancouver & Toronto, with many buyers unable to qualify at the recently inflated prices. The average sales price of a single family home in Greater Vancouver now sits at $1.6M and $1M in the GTA. Chief economist of the Canadian Real Estate Association, Gregory Klump, noted the squeeze as “tighter mortgage lending rules, which make it harder for home buyers to qualify for uninsured mortgages, are also shrinking the pool of qualified buyers for higher-priced homes.”

To little surprise this reflected in the national home prices across Canada. The Q1 2018 average sales price declined by 6.27% from Q1 2017. It was the first negative percentage decline since Q1 2009.

home price changes in Canada
Percentage change in home prices for Q1

The impact of the mortgage stress could become more apparent moving forward, particularly if borrowing rates continue to rise. As of today, a homebuyer hoping to purchase the typical home in Greater Vancouver (as per the MLS benchmark price of $1.084M) would require a minimum downpayment of $216,800 and a verified income of $175,000, assuming a 5 year mortgage at a generous 2.99%.

Is it any wonder prices of one bedroom condos continue to rise. The median price in Greater Vancouver hit a record high of $540,000 in March.

“Given their limited supply, the shift of demand into lower price segments is causing those sale prices to climb,” said CREA’s Gregory Klump. “As a result, ‘affordably priced’ homes are becoming less affordable while mortgage financing for higher priced homes remains out of reach of many aspiring move-up home buyers.”