Not everyone believes stricter stress test rules can cool Canada’s real estate market

According to Scotia Economics, stricter stress test for mortgages will hardly have a strong influence on Canada’s red-hot real estate market, calling for reduced stimulus.

The bank believes the tighter B-20 stress tests introduced by the OSFI this week will not have “a significant and long-term influence on insured and uninsured mortgages or lead to negative consequences for consumer spending.”

In Scotia’s opinion, higher qualifying rates “will keep harming housing affordability – especially, for first-time homebuyers – however, it’s quite unlikely that they will seriously cool down the real estate markets if we really see employment growth in the second quarter of the year, following the economic reopening, while supply stays restrained.”

Meanwhile, Scotia reiterated its belief that “monetary and fiscal policies are too weak amid the fast arrival of vaccines.”

Strong stimulus was reasonable when policymakers were trying to avoid “depression and deflation risks when vaccines seemed only a dream and fiscal policy was volatile”. Nevertheless, the arrival of vaccines and the faster than expected economic recovery mean that strong stimulus is no longer needed.

“B-20 could be interpreted as a sign that we need to reduce the general stimulus,” – the bank says.