B-20 hurts housing starts

by Neil Sharma10 Mar 2019

Higher mortgage rates and a lurching economy conspired to slow the pace of housing starts in February, according to the Canada Mortgage and Housing Corporation.

Last month’s 173, 153 starts were a drastic reduction over January’s 206,809. In a report, a senior economist at TD Bank speculated that the mortgage stress test is the culprit.

“As a leading indicator of economic activity, February’s steep decline in housing starts may raise some eyebrows in Ottawa,” wrote Fotios Raptis. “Although housing starts seemed to be unscathed by the new B-20 regulations that took effect in January 2018, higher borrowing costs and tougher mortgage qualifying conditions may finally be taking a toll on new residential construction.”

There is already mounting pressure on Ottawa to consider revising B-20. The Toronto Real Estate Board has already called on the government to do so twice in the last month, and the Deputy Shadow Minister for Finance has doggedly pursued the Liberals to study B-20.

The Office of the Superintendent of Financial Institutions has also somewhat loosened its firm stance on B-20, which it introduced, but it is still very unlikely that it will completely annul stress testing mortgages altogether. Carolyn Rogers, OSFI’s assistant superintendent of the regulation sector, told Bloomberg that the government agency might review B-20 if market conditions change.

“OSFI monitors the environment on a continual basis and when we determine that adjustments to our standards and guidelines are warranted, we make them.”

The Canadian Real Estate Association, too, reported January homes sales are at their weakest since 2015. According to CIBC economist Royce Mendes, 2019 is going to be onerous for the construction industry.

“Residential investment was downright ugly in the fourth quarter, and the latest reading on housing starts only added to the bad news on Canadian homebuilding,” he wrote in a report.

“Prior to this reading, starts had seen a bit of a renaissance, rising back above 200,000 for four straight months. But the market has been contending with the effects of higher interest rates and stricter lending standards, and a pace of 200,000 looked unlikely for the year as a whole.”

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