According to the Canadian Mortgage and Housing Corp (CMHC), tighter mortgage regulations are making Canada’s housing market less risky.

Default rates remain low, and growth in the residential mortgage market has slowed, likely due to the implementation of the stress test at the start of 2018. These are signals of improving financial stability.

Stephen Smith, chairman and CEO of First National Financial, supports the stress test and indicates that it shouldn’t be removed anytime soon. “I’m very supportive of the stress test. We often have a supply issue in the major cities such as Vancouver and Toronto.

If anything, demand is exacerbating that so the extent that you’re taking liquidity out of the market and you’re putting a damper on that, you’re also putting people in a position that when interest rates renew in five years, they are well able to handle an increase in rates. I think that is very prudent.”

CMHC’s report lends credence to the Bank of Canada’s view that the housing market is stabilizing, and that vulnerabilities, though elevated, are likely to ease over the next couple of years. It also supports the bank’s decision to hold steady on interest rates, since reducing them could lead to a resurgence of borrowing, reigniting the credit buildup that has been identified as a key risk to the economy.

CMHC said the lower global interest rates that we are now seeing could “re-incentivize” mortgage credit growth in 2020. It also highlighted the narrowing gap between insured and uninsured mortgages, lower long-term funding costs for lenders and the resulting decline in spreads between fixed and variable rate mortgages.