Home sales drop as weaker markets ‘destabilized’ by new stress tests: CREA
The federal government’s new mortgage stress-test rule has “destabilized” weaker housing markets by making it harder for buyers to afford new homes, according to Canada’s national association of real estate agents.
The Canadian Real Estate Association said the number of homes sold across Canada in April fell 2.9 per cent compared with March, with sales falling in 60 per cent of local markets. Adjusted for seasonal variations, it was the weakest level of monthly sales in more than five years, CREA said.
CREA president Barb Sukkau said the new mortgage stress test introduced Jan. 1 by Canada’s banking regulator “continued to cast its shadow over sales activity in April.”
The stress test was designed to ensure people can still afford their mortgages if interest rates were to rise significantly, but has had the effect of reducing the size of mortgages some buyers can get, and has pushed some buyers out of the market entirely. The volume of home sales nationally has fallen each month since it took effect compared to the same period last year.
National sales were down 13.9 per cent in April compared to the same month last year, hitting a seven-year low for sales in April. The annual decline was “overwhelmingly” attributable to a drop in sales in the lower mainland of B.C. and markets around the Toronto region, CREA said.
CREA chief economist Gregory Klump said the stress test has particularly “destabilized market balance” in regions where home sales were already weak and did not need more cooling measures, notably in Alberta, Saskatchewan and Newfoundland.
“This is exactly the type of collateral damage that CREA warned the government about,” he said in a statement, referring to the association’s opposition to the stress-test measures prior to their introduction.
“As provinces whose economic prospects have faced difficulties because they are closely tied to those of natural resources, it is puzzling that the government would describe the effect of its new policy as intended consequences.”
Home sales fell 21 per cent in Calgary in April compared with the same month last year, and were down 1.6 per cent in Edmonton, 8.1 per cent in Regina, 56 per cent in Saint John and 20 per cent in Newfoundland and Labrador.
Calgary realtor Lowell Martens, who oversees 125 agents in two Re/Max offices on the north side of the city, said the stress test wasn’t the only factor contributing to weaker home sales in the first four months of the year.