The federal government’s mortgage stress test appears to be doing more harm than good, especially for the younger generation.

Central 1 Credit Union says “They’re (first-time buyers) still facing a down payment constraint due to the federal mortgage stress test so even though prices have come down they’re not necessarily in any better position to get into the market at the current time.”

The housing market is moderating – housing sales are down and listings are increasing according to the Victoria Real Estate Board.

Single family housing starts are down 25% compared with last year in Greater Victoria.

Most analysts agree the mortgage stress test introduced more than a year ago has been the major cause.

The purpose of the stress test was to ensure homebuyers were not saddled with unmanageable mortgage payments as interest rates increased.

That scenario is now doubtful. A recent poll of analysts predict the Bank of Canada is unlikely to raise interest rates until the end of 2020 and in fact, there is a 40% chance of a cut.

The Australian govt has decided to end its mortgage stress test, because interest rates are continuing at record lows which are “likely to remain for some time.” They are allowing banks to set their own minimum assessment rates.

But the strongest case for removing, or at least moderating, the stress test is Canadians can now acquire ten-year fixed rates below the Bank of Canada’s posted five-year rate of 5.34%, the qualifying benchmark for the stress test.

If financial institutions are posting rates as low as 2.99% for ten years, rates are not moving up any time soon.

The stress test reduced homebuyers’ purchasing power by 20% and the hardest hit are young families.

If they can get ten-year rates below the Bank of Canada’s posted five-year rate, it serves no purpose to undermine their purchasing power with a stress test.

Clearly the stress test is now doing more harm than good if housing affordability is a priority as the government claims.

It is time for more flexibility in this changing market.

This column appears Wednesdays in the Times Colonist.

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