Toronto home sales slide 34% in August, average prices mostly flat

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Higher borrowing costs are hitting prospective buyers as well as existing homeowners who are about to renew their mortgage

A house for sale.  Home sales in Toronto fell in August compared to the same time last year. A house for sale. Home sales in Toronto fell in August compared to the same time last year. Photo by Peter J. Thompson/National Post

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Toronto’s housing regulator is asking the government to reconsider the stress test as home sales in the country’s most populous city showed signs of recovery in August, with prices and volumes rising in July.

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The Toronto Regional Real Estate Board said higher borrowing costs not only affect whether Canadians can buy homes, but also hit existing homeowners who are about to renew their mortgages. In such a climate, the Office of the Superintendent of Financial Institutions (OSFI), Canada’s top financial regulator, should consider whether the current stress test is still applicable.

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“Does it make sense to test homebuyers two percentage points above the current hike in interest rates, or should a more flexible test be used that follows the interest rate cycle?” said its chief executive John DiMichele.

A report released on Friday showed that the number of homes sold in August rose by 5,627 from 4,912 in July. However, that is still 34.2 percent below the 8,549 home sales in 2021.

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It turned out that sales accounted for a higher proportion of new registrations compared to the previous three months, possibly indicating some support for sales prices in the coming months.

The data also shows that the board’s MLS Home Price Index is up 8.9 percent year-on-year, while the average selling price for all sales increased only slightly, 0.9 percent from $1,070,201 to $1,079,500 -dollar has gone up.

In an interview, the board’s lead market analyst said the year-on-year sales decline this year, as well as higher borrowing costs, are partly due to uncertainty.

Jason Mercer said they have asked OSFI, Canada Mortgage and Housing Corporation and the Treasury Department for clarity on the stress test, payback periods and price caps for mortgage insurance eligibility given the rapid rise in borrowing costs.

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“It’s important to hear what these bodies have to say about housing affordability,” Mercer said, noting that the housing market is very interest rate sensitive and will continue to be affected.

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The housing committee said removing the stress test when switching existing mortgages to a new lender may provide affordability for existing homeowners. It also called for longer payback periods on mortgage extensions to support the inflationary environment.

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Not much has changed since the 2 percent stress test was introduced, Mercer said, adding that it’s important to have flexibility in applying that test, especially as the market moves through different stages of the interest rate cycle.

“Does the (current) stress test make sense in an interest rate environment that is very different from when it was first introduced, and also very different from the extremely low interest rate environment that we are seeing in 2020, in the first half of the 2021 or have experienced at all? the way to the first half of 2022?”

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