BCBusiness

APRIL 2019 BCBUSINESS 15 G O F I G U R E B.C. VINEYARDS LOCATED IN THE OKANAGAN VALLEY CHANGE IN SALES OF B.C. WINE, 201619 0.3% RED WINE 2.4% WHITE WINE 37.2% ICE WINE +18.5% DESSERT WINE +28.8% SPARKLING WINE +43.4% ROSÉ F ollowing a barrage of criticism and growing angst within the real estate industry, O-ce of the Superintendent of Financial Institutions ( OSFI) assistant superintendent Carolyn Rogers faced the noise in a recent speech to the Economic Club of Canada. Rogers reminded the Toronto crowd of the rationale behind her federal agency's B•20 mortgage stress test, summarizing its mindset dur- ing the now-distant Canadian housing boom. "The prevailing sentiment that house prices would only go up and interest rates would only go down was, in our view, contributing to an overreliance on collateral value and not enough scrutiny of a borrower's ability to repay a loan, particularly if condi- tions were to change," she said. "Against a backdrop of record levels of consumer debt, this was a level of risk-taking that OSFI decided needed to be reined in." As it turns out, interest rates could go up—and though they've stabilized, mortgage rates have climbed more than 100 basis points since bottoming out in early 2016. This led to the discovery that Canadian home prices could succumb to the laws of grav- ity, with last year's 4-percent average decrease marking the Šrst annual drop since 2008. Declines have been magniŠed in the resilient city of Vancou- ver, where prices keep sliding monthly, a trend once consid- ered unimaginable. Rogers added that her con- cerns reach beyond the West Coast. "The most common crit- icism is that we implemented a national policy to deal with a localized problem—that of extreme price escalation in the residential property market that only exists in Toronto and Vancouver," she said. As Rogers pointed out, such critiques often come with the suggestion that borrowers in other cities that haven't seen such price increases shouldn't have to take the stress test. "This criticism assumes that B•20 was designed to target escalating home prices, which it was not," Rogers explained. "B•20 was designed to target mortgage underwrit- ing standards. And sound underwritings look the same, no matter what city or prov- ince you live in." Market pressures could force OSFI to crack, she admit- ted: "Should that margin of safety be monitored, and should changes be considered if conditions in the environ- ment change? Of course they should." Just what is considered an environment change? In 2018, national home sales volume tumbled to a six-year low, according to the Canadian Real Estate Association; B.C. sales plunged 24.5 percent, dipping below the 10-year average. OSFI's calls for pru- dent underwriting standards and less debt could soon be cut short, especially with a federal election looming. To appease voters, there's a strong chance that Finance Minister Bill Morneau will stretch mortgage amortiza- tions to 30 years for Šrst-time buyers. The industry would welcome such a move— especially home builders in Toronto, which su¢ered an 18-year low in new-property sales in 2018. The political tug of war is far from over, though. "The stress test was extended to 5-yr mortgages in 2016 to protect future economic growth," Evan Siddall, Canada Mortgage and Housing Corp.'s outspoken CEO, tweeted in February. OSFI added the B•20 test as an under- writing safety bu¢er, Siddall noted. "Since neither decision was founded on low rates, I wouldn't foresee a rate-driven readjustment," he argued. Siddall also said that stress tests have reduced the average equilibrium national house price by 3.4 percent—7.9 percent and 5.3 percent in Vancouver and Toronto, respectively— CMHC research shows. "Lower prices and less debt helps [Šrst- time homebuyers]." With no clear winner in sight, it looks like the battle has just begun. Political Struggle With regulators sticking to their guns on mortgage stress tests, will the federal government throw the housing market a lifeline? by Steve Saretsky P R OP E R T Y WAT C H $283.90 PER CAPITA ANNUAL SPENDING ON WINE IN B.C., 2016-17 20% higher than the Canadian average 35% of total provincial alcohol spending 2.3 litres per person 84% 1932 The province's oldest commercial winery established: Kelowna's Calona Vineyards, now operating under Andrew Peller B C L I Q U O R D I S T R I B U T I O N B R A N C H, S TAT I S T I C S C A N A D A 54% 23% 11% CHINA TAIWAN U.S. B.C. exports wine to 17 international markets TOP MARKETS, 2016 CMHC boss Evan Siddall has defended efforts to tame real estate prices and debt

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