Mortgage stress test pushing more Toronto home buyers into Hamilton market

Canada's mortgage stress test is reinforcing the migration of home buyers fromToronto to Hamilton in search of deals.

And that is adding to the already competitivemarket created by the stress test, which iscutting the buying power of house hunters inHamilton.

Industry experts say the stress test is pushing buyersinto smaller homes and in some cases, out of the area altogether.

The stress test forcing buyers to qualify for a mortgage at a higher interest rate than currently exists is meant to put the breaks on runaway prices.

It's not going to be the same house. It's going to be less expensive, or will need more work to fix up.- George O'Neill, RAHBCEO

They say prices have dropped, but not by as much as the drop in buying power created by the stress test, putting more pressure on lower end homes- particularly those being sought by first-time buyers.

Realtors Association of Hamilton-Burlington CEOGeorge O'Neill said the average price for all property typesdropped8.9 per cent last month, compared to the same period last year from$609,664 to$555,661.

Meanwhile, he said, the buying power of people looking to purchase a home has plummeted an estimated 15 per cent since the new mortgage rules were put in place on Jan. 1.

• Hamilton housing market continues downward trend in April

• Make home ownership affordable,OREAcampaign to urge election candidates

"It's fair to say people are qualifying for less," he said. "It's not going to be the same house. It's going to be less expensive, or will need more work to fix up."

Stress test 're-shifting' expectations

The stress test was introduced by the Office of the Superintendent of Financial Institution as a tool try to cool the country's hot housing market. Now, in order to get a loan from a federally regulated lender, home buyers have to prove they would be able to pay their loanif interest rates became higher than they are today.

That means a buyer who in the past would have qualified for a 3.09 per cent loan now has to qualify at a rate of 5.14 per cent, according to a recent report from real estate company Royal Lepage. So, the same buyer who qualified for a $486,674 home at the old percentage has been bumped down to a residence worth $406,479.

• Millennial home buyers are facing more competition with smaller budgets: report

O'Neillreferred to the changes in the market as "re-shifting buyer expectations."

He explained the April 2017 was a peak for sales and that the stress test isn't the only factorfixed mortgages rates have also gone up but added the test's effect is also being felt at the top end of the city's market, where nineper cent of sales have been in the $1-million-plus range, compared to 12 per cent last year.

Buyers have to 'drive until you qualify'

The Canadian Real Estate Association (CREA), is also pointing to thenew mortgage rules as a major factor behind a13.9 per cent drop in sales compared toprevious year's level thelowest April showing since 2011.

"The stress-test that came into effect this year for homebuyers with more than a twenty percent down payment continued to cast its shadow over sales activity in April," said CREA President Barb Sukkauin a media release.

• Average house price fell 11% in past year, CREA says

Shaun Cathcart, a senior economist with the association, said the average home price in the Golden Horseshoe as a "funhouse mirror" compared to last spring.

"Some buyers are now having to shop further down-market, while activity for higher-end homes has slowed."

You're still getting more square footage for value versus Toronto.- Joe Ferrante, Royal LePage

At the lower end of the housing market the impact of the test is being felt in a different way, explained the economist.

Cathcart said the stress test is continuing to push Toronto home buyers to "drive until they qualify" in places like Hamilton.

Sellers in the city now have more qualified buyers to compete for their properties, but some potential buyers are being out-competed or "priced out of the ownershipof housing."

Hamilton house hunters looking east

Royal LePagereal estate agent Joe Ferrantesaid despite the current challenges, he believes the stress test isactually "good news" for some parts of the city including central and east Hamilton because it will drive even more first-time buyersout of Toronto and Canada's other big cities here.

"You're still getting a lot of value," he explained."You're still getting more square footage for value versus Toronto or other metropolitan areas."

• 3 things to watch for in Hamilton's for-sale housing market in 2018

As for hopeful homeowners who feel prices in Hamilton are rising too quickly, Ferrantesaid they tend to head east.

"They're more towards Niagara Falls and St. Catharines, Welland, those types of communities," he said."If you have half-million dollar town house in Stoney Creek, that gets you a nice little single with a heck of a lot of property further into the Niagara region."

• MORE HAMILTON NEWS |Hamilton throws support behind Ingersoll's fight not to take Toronto garbage
• MORE HAMILTON NEWS |Hamilton board of health approves ban on bottled water and sugary drink sales