Edmonton House Prices and the New Mortgage Stress Test Rules: What You Need to Know

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Photographer: Mika Baumeister | Source: Unsplash

Effective June 1, 2021, the Bank of Canada qualifying rate increased from 4.79% to 5.25%. What does the recent change in the mortgage stress test mean for homebuyers? Will it affect Edmonton house prices? And will it slow down this red hot Edmonton market?

What is the mortgage stress test?

The mortgage stress test has been around since 2018. It is essentially a test to make sure homebuyers can still afford to pay their mortgage if rates increase.

When you apply for a mortgage, the bank will run affordability calculations for two different mortgage rates: the contracted rate (which is ideally the best mortgage rate you qualify for) and the Bank of Canada qualifying rate (changed from 4.79% to 5.25% on June 1st). The Bank of Canada qualifying rate is based on an average calculation of posted 5-year fixed rates across Canada’s big banks.

Your income needs to be high enough (and your current debt load low enough) that you can afford to pay your mortgage at the qualifying rate.

What does this change mean for Edmonton homebuyers?

In general, experts suggest that the changes will reduce buying power for homebuyers (specifically those who are borrowing close to the limit) by about 4-5%. In general, homebuyers with high debt-to-income ratios are likely to see a greater impact by the change.

According to data from the Office of the Superintendent of Financial Institutions (OSFI), high debt-to-income homebuyers account for roughly one out of 10 uninsured borrowers and roughly one out of five insured borrowers.

While the new mortgage stress test applies some downward pressure, it’s not the only factor at play in the housing market. Particularly here in Alberta, where Edmonton house prices are still among some of the most affordable in the country, the impact is not anticipated to slow things down significantly.

New stress test affordability calculator

For a home buyer with an annual income of $100,000 with 20% down payment and a five-year fixed mortgage rate of 1.78% amortized over 30 years:

  • Previous rate of 4.79%: Maximum affordability was $651,000
  • New rate of 5.25%: Maximum affordability is $618,000

Source: Global News

Curious what mortgage amount you qualify for under the new stress test? Try this Mortgage Qualifier Calculator Tool from the Financial Consumer Agency of Canada
Monthly Edmonton Real Estate Market Stats courtesy of REALTORS® Association of Edmonton

Current average Edmonton house prices

The average house price across all residential home types is $401,390, a 13.4% increase from May 2020 and up 3.0% from April 2021. Single-family homes averaged $465,551, a 12.9% year-over-year increase and a 1.6% increase from April 2021. Condominiums sold for an average of $241,885, an 18.4% increase year-over-year, and prices are up 5.7% compared to April 2021. Duplex prices increased 10.1% from May 2020, selling at $358,195, which was a 3.1% increase from April 2021.

The bottom line: Don’t stress the stress test

Compared to other cities, such as Toronto where the average home price is almost $790,000, Edmonton is still quite affordable — even for first time homebuyers. In fact, a recent article in the Edmonton Journal noted that first-time buyers in Alberta are among the nation’s least anxious about buying a home. Only 46% of Albertans reported feeling stressed about having enough for a downpayment and ultimately being able to afford a house, down from 57% two years ago.

The recent change to the stress test, for some, may mean a slight adjustment in expectations particularly if you are looking at the top end of your pre-approval amount. The choice is yours: Do you want to wait to save up a bigger down payment to get the house you want? Or are you okay with reducing your budget and searching for homes at a lower price point instead?

Compared to other markets where first time homebuyers aren’t sure if they can afford to buy at all, the Edmonton market is much friendlier to new buyers.

With over 15 years of real estate experience in Edmonton and surrounding area, Wally has helped thousands of homebuyers and sellers successfully navigate the market.

Have questions about qualifying for a mortgage or want to know more about Edmonton house prices in your preferred neighbourhood? Phone/text Wally today at 780-238-7384