It’s no secret the Alberta real estate market has seen better times. Jason Kenney, leader of the opposition to current premier Rachel Notley, vows to stand up for Alberta in this regard if elected. “The current NDP government has been absolutely silent about this. We will not be.” Kenney stated at a realtor’s convention in Calgary. “If you elect a United Conservative government, we are going to go to bat for (those) … who are being pushed away from home ownership because of the prejudicial, regional, unfair stress test imposed by the Canada Mortgage and Housing Corp.,”
The stress test was stopgap effort to try to curtail the growth in major cities like Vancouver and Toronto who had been experiencing parabolic growth. The stress tests require borrowers to qualify at much higher payment rate than their actual payment rate. In some cases borrowers were qualifying at a rate of 5.49% when their effective rate was two full percentage points below at 3.49%. The primary reason for the surge was foreign ownership, mainly from China. Instead of dealing with the issue, the government choose an ill-conceived plan to deal with the market growth. Had they considered limiting foreign ownership all together, many buyers would not be facing current challenges to owning a home. Home owners in Vancouver will soon be in trouble as their foreign ownership inflated bubble begins to burst.
This policy may have fulfilled its intended purpose in major markets in B.C. and Ontario, but left prospective first time buyers in Alberta and other provinces feeling frustrated. The rental markets in Alberta have surged, another unintended result of the legislation. Home owners who can no longer qualify for their target home range, are now paying higher rents.
How much has this change impacted our clients? Let’s give an example of a few potential buyers; we’ll call them Joe and Jane. Joe and Jane both have full time permanent jobs earning around $35,000 per year. They pay all of their bills on time, don’t have or accumulate debt. They’ve slowly saved 5% down payment and would like to buy single family home as they prepare to start a family together. Previously with $70,000 of combined income and no debt, they would have been able to buy a single family detached home in the $360,000-$390,000 range. Now, with the new qualifying changes, they are forced to look under $300,000 which doesn’t allow them to buy the home they want to grow their family in. This new change has not only impacted the first- time buyer, but also every other buyer/seller in the market chain.
In our opinion, Kenney wouldn’t be able to fight this national policy, but it’s nice to hear his passion for the home owners of Calgary, Edmonton, and the rest of Alberta. We could see this policy removed if it began to impact other markets negatively in a nationwide recession as an attempt to spark the economy.