Government policies designed to cool off red hot housing markets in cities such as Toronto and Vancouver are leading to weakened homebuyer sentiment across Canada, according to a new survey by Mortgage Professionals Canada.
The survey found that increasing interest rates and stricter mortgage rules are making it more difficult for homebuyers to secure financing while declining home prices are impairing consumer confidence.
"The cumulative impact of rising rates, a two per cent or greater stress test, provincial government rules in Ontario and British Columbia, and further lending restrictions are negatively suppressing housing activity not just in Toronto and Vancouver, but throughout the country," said Paul Taylor, President of Mortgage Professionals Canada, in a news release.
The survey also found that Canadians are feeling less positive about whether it’s a good time to buy a home in their community. Homebuyer sentiment fell to a neutral level this spring, dropping from consistently positive attitudes prior to 2016.
At the same time, 32% of survey respondents said they expect broader mortgage stress tests that began in January will have "significant negative impacts" on their ability to purchase a home in their preferred neighbourhood. Those who don’t currently own a home are even more concerned, with 54% saying they expect the stress tests will have significant negative effects.
The industry association also warned that weakening sentiment is affecting some housing markets unnecessarily, noting that prices are showing erosion in markets such as Alberta, Saskatchewan, and Newfoundland, which are still recovering from lower oil prices.
"This is one of the greatest economic risks facing Canada – that local economic weakness combined with the deliberate suppression of housing demand via the mortgage stress tests could result – unnecessarily – in falling house prices in some areas of the country," the report said.
In June, the Bank of Canada said that stricter mortgage rules have helped ease elevated consumer debt and slow price gains for single-family homes in Vancouver and Toronto.
