In 2017, in fact, we are forecasting a drop in residential sales in Quebec in the order of 7%. Those most affected by the new mortgage rules are mostly buyers with a down payment of less than 20%, meaning mostly first-time buyers.
According to our estimates, the interest rate stress test alone should exclude between 5,000 and 6,000 Quebec buyers from the market in 2017. That represents about $220 million less in ancillary expenses. In addition, since the purchasing power of a number of households will be cut off by the stress test, we forecast that Quebec property prices will not increase in 2017.
The Quebec real estate market should not suffer the effects of the overheating in Toronto and Vancouver. In fact, the Quebec real estate market is not the same, for the following three main reasons.
First, our property prices are much more affordable than in other Canadian provinces. In 2016, the average property price in Quebec was $281,000, compared to $471,000 in the rest of Canada. Even Montreal, where the average property price is approaching $350,000, compares favourably with the average property price in Toronto, which is $730,000, and in Vancouver, where the average is almost three times higher, at just over $1 million. In Quebec, the lower prices mean that excessive levels of household debt are less of a factor.
Second, far from seeing any overheating in a number of regions, current conditions for the Quebec real estate market shows the balance tilting towards buyers. For that reason, property prices have grown only 5% between 2012 and 2016, that is, since the maximum amortization period was tightened from 30 years to 25. The soft landing has been achieved and other measures are unjustified, if not harmful, because they could cause property prices to drop in a number of regions. Real property is generally a household's greatest asset.
Third, Quebec is significantly behind the other Canadian provinces in terms of the rate of home ownership. In fact, only 61% of Quebec households own their homes, whereas the rate in all the other Canadian provinces without exception is 70% or more. The new mortgage rules that have been in force since last October will put a major brake on ownership. For example, before last October 17, to qualify for a $300,000 loan, gross household income used to have to be about $59,000. Today, it has to be about $72,000. That clearly shows how the “stress test“ will exclude a significant number of potential middle-class buyers.
On the heels of the stress test, which requires lenders to use a hypothetical rate of interest, comes a third increase in mortgage insurance premiums in four years and reduced competition in the mortgage market. Those three factors will come together and prevent a number of young families from achieving their dream of home ownership under the same conditions as the generations that went before.