Canadians are generally optimistic about the housing market, but new homebuyers in Vancouver and Toronto have the lowest levels of optimism and the highest stress levels about home purchasing, according to a new survey by Mortgage Professionals Canada (MPC).

The stress comes from local market pressure in the two cities, and it is impacting when new homebuyers plan to purchase. Consumers there are more likely to make compromises on their expectations or delay their home purchases so they can save for higher down payments and keep household debt down, says the survey.

“Overall, Canadians are feeling optimistic about the housing market and the economy,” said Paul Taylor, MPC president and CEO. “Economic growth contributes to higher incomes and consumers’ ability to make solid down payments and manage household debt.

“Even in the pressured housing markets of Toronto and Vancouver, personal circumstances, rather than a sense of urgency, are influencing purchasing decisions”

After looking at overall averages for Vancouver and Toronto, the survey found that living in a high-pressure market has not caused buyers to lose sight of the need to accommodate future expenses.

MPC’s survey questions the federal government’s mortgage risk assessment stress test introduced last October as a way of reducing Canadians’ household debt. The test determines whether borrowers could afford mortgage payments should interest rates increase sharply – by two percentage points from current levels.

Rather than decreasing debt load, the stress test is driving some consumers to uninsured lending options with sometimes significantly higher interest rates, shifting the debt load of the most vulnerable consumers away from the stability of mortgage insurance, MPC said.

The federal government’s stress test assesses borrowers’ ability to afford payments calculated using the posted interest rate, which is 4.64% and is higher than currently available negotiated rates, which are as low as or lower than 2.5%.

“We agree with a mortgage stress test but it should be reflective of more realistic future interest rates so Canadians can continue to have access to affordable homeownership,” said Taylor. “Modifying the criteria has a more realistic chance of improving homeownership for consumers.”

In MPC’s survey, 48% of potential buyers said they expected their down payments to be less than the required 20%, which would make them subject to the stress test, and 20% of these potential buyers would be unable to obtain the financing required.

The survey asked consumers who do not meet the stress test eligibility criteria how they would proceed. Most respondents indicated they would either increase their down payments or buy less expensive homes.

Respondents would increase their down payments in the following ways :

· 31% would withdraw from registered retirement saving plans (RRSPs);
· 16% would obtain loans from financial institutions;
· 43% would delay their purchase; and
· 30% would seek help from family (gifts/loans).

Since almost one-half of homebuyers require mortgage insurance, these results indicate that a significant number of potential homebuyers in Canada will be negatively affected by the federal mortgage insurance stress test, said the survey.

Survey : Vancouver Homebuyers’ Stress Levels Some of Highest in the Country by Sean Yoon | Business in Vancouver