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Summary
- Tighter mortgage qualification rules will make it difficult for homebuyers to secure financing.
- Work from home options and cheap mortgages have increased the demand for houses.
- Last month the Canada Mortgage and Housing Corp. (CMHC) said that the housing sector in Canada was facing vulnerability.
Amidst rising demands for measures to cool down the Canadian housing market, the Office of the Superintendent of Financial Institutions (OSFI) said that it would tighten the mortgage qualification rules, making financing difficult for homebuyers.
To save the booming real estate market from crashing, the OSFI might set up the new benchmark interest rate to 5.25 per cent, against the present rate of 4.8 per cent. This rate is used to determine if an individual qualifies for an uninsured mortgage.
Commenting on the present real estate market situation, Jeremy Rudin, who is the head of OSFI, said that this move is more important than ever and the underwriting of the sound residential mortgage is essential for financial institutions to remain stable and stay safe.
Work from home options and cheap mortgages have increased the demand for houses and as a result, prices are soaring in the country. According to the Canadian Real Estate Association, the prices are up 17 per cent across the country compared to last year. At least 12 major markets have witnessed a price increase of more than 30 per cent.
The OSFI has also said that to ensure ideal market conditions, the regulatory body will revisit the calibration of the qualifying rate every year.
RBC Had Called For Measures To Cool Down Housing Market
Just before the OSFI made the announcement, Dave McKay, CEO and President of the Royal Bank of Canada had urged that some action was required to cool the demand in the housing market. He had proposed tweaking the mortgage rules to handle the present situation.
Earlier in March as well, Robert Hogue, an economist at the RBC had suggested that the housing market in Canada was heating and that measures were needed from the policymakers to cool it down.
Source: Pixabay
Toronto Housing Prices Surge, CMHC Had Also Issued Warnings
On April 6, the Toronto Regional Real Estate Board (TRREB) said that the pricing surge brought 20 per cent annual average gains and the total number of sales in March was 15,652 units, an increase of 97 per cent year-over-year.
Last month the Canada Mortgage and Housing Corp. (CMHC) released a survey report and said that the housing sector in Canada was facing vulnerability for the second consecutive quarter and that the rural areas were also contributing to market pressure. The corporation had named Toronto and other four areas as major contributors to the overheating market conditions.
