Who Does the Stress Test Help? - Not Buyers!

If you have been keeping an eye on the news, you would by now have heard about the recent announcements to changes to the criteria for approval for the stress test for buyers. For those of you that haven't heard the news:

The CMHC stress test will be increasing from 4.79% to 5.25% as of June 1 for all insured and uninsured mortgages going forward.

How does this affect your home purchase or sale, check out my blog, EVERYONE HATES THE STICKER PRICE here to see how rate changes impact purchasing power.

Now that everyone is up to speed, what does this mean for our market going into the summer?

Well, if you are a buyer in this market, you're not too happy with this move since it directly impacts your pocketbook and reduced what you can afford in a time where prices are continuing to climb in our city and the country.

Sellers, you are going to have to deal with more and more buyers that cannot afford your home and the prices you are setting due to this arbitrary change the government has imposed on the market. But you will not be as impacted as the government would hope with change. Read on to learn why.

But why make this change? Why apply it now when finally sellers are able to get some kind of return for their investment. Something sellers here in Calgary have been waiting for the last 5 years?

Well, we are like the middle child in this equation compared to the other markets (where more voters are might I mention) in BC, Ontario, and Quebec. The biggest markets in these provinces (Vancouver, Toronto, and Montreal) have all see massive increases in pricing. To a point where if a new home buyer wanted to purchase a home, it would just be completely unattainable.

So what does the government do? Spread the blanket over the entire country with regulations like this stress test in an attempt to slow these specific markets and try and bring pricing down by affecting one party's purchasing power.

If you are a new home buyer, you might be saying, "Aly, this is good! Having someone look out for us during this time and limit pricing will help me get into homeownership and allow me to entire the first step of generational wealth in Canada"

You might be right. But can I tell you what The Market response to this would be?

"Hold my beer and watch."

What have been some of the driving factors of the significant increases in pricing in the other major markets over the past 4-5 years?

Foreign Investment.

Canada is one the best countries in the world to live in. Each province and territory gives the option of building a great new life for people across the world. Usually, when we think about people moving to our country, we think of refugees or those that Canada is helping to escape the home country's issues.

But our country also has some of the best schools, opportunities for business, lower cost of living with so much more value for each dollar spent.

I can speak from experience when I tell, a buyer from outside our country sees our school system for example as one where they want their kids to be. That is why you see so much Asian investment in BC. A more local example would be the community of Sherwood here in Calgary, which is on fire right now in terms of sales. Its designated high school is an IB (International Baccalaureate®) school.

This is just one reason why foreigners want to move to this country. There are so many other reasons why our country is looked at around the world as a place people want to move into.

Do you think the stress test is slowing down their investment into our country? Not a chance. Especially when you look at the world mindset about credit compared to North America. Credit and living off of credit is a North American phenomenon that doesn't exist in most other countries.

I've had clients from the UK that would only purchase with cash. Buyers from the Middle East that don't believe in interest. The list goes on and on.

So changing a borrowing rate isn't going to slow down their investment in our county. Especially when they are purchasing a home in Canadian Dollars and earning in USD, UK Pound, etc. This change is an insignificant one for them.

So at the end of the day, yes this change will affect homegrown buyers with their purchasing power, making it harder. But it opens the door to remove these buyers from certain price points and leaving that market open for foreign investment as well as investors and those that already reap the benefits of ownership to take advantage and fill the gap. These are buyers that have the cash on had to purchase or can leverage other properties to attain even more ownership

So whether you agree with this change or not, it will impact our market in June. Stay tuned and JOIN MY NEWSLETTER to get the latest updates on the market. My goal is to keep you informed so that when you decided to enter the market, you are fully armed with the knowledge to make the best decisions possible.

Thanks for your time as always.


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