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Mortgage stress test rules become lenient for the first time in years

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Canadian mortgage rates have dropped for the first time since the Canadian government implemented new stress rules on mortgages, allowing potential homebuyers to qualify for bigger mortgages than before.

The stress test was introduced in January 2018, becoming the financial bar in which any Canadian wanting to obtain a mortgage must pass before getting approval. Irrespective of whatever deal a lender may have offered, before regulators can approve a loan, the borrower’s finances must be tested as though their mortgage was at a high rate.

The whole idea of the stress test is to save borrowers from incurring more debt than they can afford and ensure they have the financial capability to thrive in the instance where the rates increases.

The stress-test level is placed at either two percentage points above the actual mortgage rate or as calculated by the Bank of Canada, whatever the average five-year posted rate is at Canada’s big banks. The highest of either one is then selected as the benchmark.

Since May 2018, the bank rate hasn’t changed after rising to 5.34 per cent. But in July, it decreased for the first time in almost three years to 5.19 per cent.

The effect of slightly lowering of the bar allows people qualify for a bigger mortgage than they could before, even if there are no significant changes in their finances. The move by Bank of Canada to lower the qualification rate, gives prospective homebuyers slightly more purchasing power, allowing them to bid for slightly more expensive homes than the previous rate allowed.

Nonetheless, there are Toronto certified mortgage brokers whose aim is to make it easier for you to make these important decisions by helping you understand the various options available to you—and their respective advantages.

The move isn’t exactly a huge one as according to calculation from rate comparison website Ratehub.ca, the typical borrower can now afford about 1.4 per cent more home than before.Under the previous test level, if a borrower had an initial payment of at least 20 per cent and earned $100,000 annuallywith no other existing debts, they would qualify for a home valued at $589,000. Today, that borrower can now afford a house worth $597,000.

The new reduction doesn’t make mortgages any easier to pay off, it just allows borrowers to theoretically afford a slightly more expensive home than they would have previously been able to.

Although the new five-year benchmark rate spells good news for some prospective homebuyers, in reality, it hasn’t really affected the system, noted Samantha Brookes, CEO of broker Mortgages of Canada.

“It allows someone purchasing to buy a little bit more but it’s not that significant,” she told CBC. “Consumers are in this wait-and-see pattern — it’s still difficult to get into the market because that stress test is there.”

While the little room afforded to homebuyers may make home sales look a little better on paper, but the real impact may just be in our imaginations, says Nick Kyprianou, president of RiverRock Mortgage Investment Corporation, a Toronto-based alternative mortgage lender.

Kyprianou’s business has been made busier by the new stress-test level, as borrows began to ignore traditional lenders and move towards alternative lenders. “But it was a reasonable thing to do,” he says. “As a homeowner and a citizen it wasn’t the wrong decision — things were irrational.”

The stress testing level moving almost unnoticeably lower is likely to help instil more confidence in the market, as not only is testing level lower but actual mortgage rates are dropping too.

Fixed mortgage rates are priced based on happenings in the bond market, which has been suggesting for months that lower mortgage rates are expected.

With the U.S. central bank planning to cut its benchmark interest rate soon, the Bank of Canada would not be immune to the global forces that may drop the rates down even further.

“This is a psychological game. If people feel confident, they’ll get back in the market,” said Kyprianou, who noted that a reduction in rates in the real world would have a much bigger impact than the little reduction in the stress test.

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Real Estate

Not even real estate is immune from the impact of the coronavirus

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The novel coronavirus may have started as a health scare in China, but now that it has spread to more than 100 countries, its economic impact is becoming increasingly difficult to ignore.

The contagion has sent global stock markets into panic mode, with a record plunge on Monday and soaring volatility ever since.

Housing markets in Canada and Australia, however, appear undeterred by the jitters. In fact, they have even taking encouragement from recent rate cuts implemented to combat the crisis.

At the same time, home-refinance applications in the U.S. have surged by 79 per cent, as per the U.S. Mortgage Bankers Association’s refinance index.

But is real estate really immune from the impact of the coronavirus, which was officially deemed a pandemic by the World Health Organization on Wednesday?

Some real estate sectors are clearly more vulnerable than others. The surge in cancellations for tourist travel is not only affecting airlines but also hotels and others in the lodging industry.

The next week is usually one of the busiest travel seasons of the year as families travel during the March break. Already, cancellations are at an all-time high, something that is putting stress on the hotel industry, and one could see that part of the market come under pressure if conditions pressure.

Some investors, meanwhile, expect REITs to do well in times of uncertainty because, with long-term leases, landlords are likely to enjoy more stable cash flows than manufacturers and others who are more sensitive to short-term declines in the demand.

In addition to office and large retail real estate, where tenants usually have longer leases, investors are reportedly favouring purpose-built rental housing and self-storage real estate.

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Real Estate

Coronavirus is already taking its toll on Canada’s real estate market

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The real estate frenzy in Canada’s biggest markets is headed for a chill as anxiety rises over the economic fallout of the coronavirus.

A call for social distancing means far fewer people will be opening up their homes to potential buyers. 

RE/MAX wants its realtors in Ontario, the Atlantic provinces and Western Canada to cancel open houses until COVID-19 is under control.

“While almost all real estate brokerage firms have embraced digital tech and realtors are able to utilize signature platforms and other tools to conduct business, once showings, open houses and other in-person business is restricted, there will definitely be a drop off in transactions,” John Lusink, president and broker of record at Right at Home Realty, told Yahoo Finance Canada.

“We expect to see a drop in sales but this will take a month or two to filter through into the actual results.”

Buyers will also likely put their plans on hold.

“Obviously there has been an immediate pause in market activity as everyone tries to figure out what happens next,” Steve Saretsky, realtor and author of real estate blog Vancity Condo, told Yahoo Finance Canada.

“We are seeing buyers move to the sidelines and sellers put some of their listing plans on hold.” 

But that doesn’t mean the end result will be more affordable homes.

“The way I see it the housing market is basically frozen… no buyers and no sellers,” Benjamin Tal, deputy chief economist at CIBC Capital Markets, told Yahoo Finance Canada.

“That in a way will limit or even eliminate any notable downward risk to prices. Simply the  number of sales will go down dramatically.”

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Real Estate

6 Ottawa Homes For Sale Along OC Transpo That Are Still Kinda Affordable

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Like many big cities, finding an affordable place to live in Ottawa can be challenging, especially for new home buyers. Though one benefit of living in the capital is having access to public transportation within minutes, which in the long run, might help offset any moving expenses. So if you’re a new buyer or just looking to relocate, cheap homes for sale near transit in Ottawa are perfect for those who are always on the go.

The Ottawa Real Estate Board reported back in February that the average cost to buy a home was 21% higher than the previous year. 

Despite these growing prices, it seems that Millenials are still flocking to the area to enjoy Ottawa’s culture.

There are so many beautiful places to explore and fun things to do that it’s not hard to love where you live no matter your budget. Being close to public transit is always a plus, especially if you don’t own a car but still want to enjoy the perks of the city. 

These spots are both affordable and travel-friendly, so you can save money and still explore the area without breaking the bank.

They are also OC Transpo accessible.

From charming bungalows to three-story units, there’s a place for everyone to call home.

If you want to feel more like a royal for the day, you can check out these luxurious Ottawa homes that are basically giant spa getaways.

Pull out your Presto Card and get ready to explore the city as soon as you step out the door!

According to the Ontario Real Estate Association, the Ontario government has currently prohibited open houses during the current state of emergency. 

The Real Estate Council of Ontario states homebuyers are still able to view listings online through virtual tours and 360 walk-throughs. 

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