Mortgage stress tests expected to lower demand in Calgary

​Demand for housing in Calgary is expected to fall in response to new mortgage rules designed to ensure homeowners aren’t drowning in debt during a period of rising interest rates.

'It's going to mean less people can afford to buy, and prices are probably going to sag because of it'

The Calgary real estate market could see demand shrink in response to new mortgage rules. (CBC)

Demand for housing in Calgary is expected to fall in response to new mortgage rules designed to ensure homeowners aren't drowning in debt during a period of rising interest rates.

The federal rules, which came into effect Tuesday, increased the threshold many home buyers must reach to qualify for mortgages.

All purchasers, including those who put down 20 per cent or more of their new home's value, will have to submit to a so-called stress test to ensure they can make their payments if interest rates rise.

They'd have to prove they could keep up with payments at either the Bank of Canada's five-year average rate, or two percentage points higher than what they've negotiated with their lender — whichever is higher.

"We do expect this to cause some slowing in demand but not a significant amount," said Ann-Marie Lurie, chief economist at the Calgary Real Estate Board.

The changes will mean some house hunters may not be able to upgrade to a more expensive place they were hoping for in their preferred neighbourhood.

Others may have to settle for a condo or a townhouse, instead of a single-family home.

First-time buyers may also have to hold off from making the major purchase to raise a larger down-payment to get what they want.

Calgary Real Estate Board chief economist Ann-Marie Lurie speaks to reporters after releasing CREB's market outlook for 2017. (Evelyne Asselin/CBC)

"If they were thinking they could get a $500,000 home and now they can no longer get that, they're going to have to consider all their alternatives," Lurie said.

The overall slump in demand, she said, will likely be slightly offset by several factors, including an improved economy and a considerable supply of new homes across various price ranges — the legacy of a prolonged recession.

Mike Boyle, the president of the Mortgage Group Calgary, says the federal mortgage changes are a response to overheated housing markets in Toronto and Vancouver. He said other cities, like Calgary and Saskatoon, will suffer from slumped demand and likely lower prices.

"It's going to mean less people can afford to buy, and prices are probably going to sag because of it," Boyle said.

Lurie said the rule changes, announced in the fall, likely led to a short-lived spike in home buying before the changes came into effect this week.

"We went from a market that was really trending below long-term averages," she said. "After the announcement, we saw an increase in sales activity [in November and December]. There was nothing else that changed in that timeframe."

The new mortgage rules are expected to factor into the real estate board's 2018 forecast, likely to be released later this month.