Flaherty loosens grip on mortgage regulations

Earlier this week Finance Minister Jim Flaherty said that the nation’s housing market is starting to cool, but a couple of hot spots still remain.

According to Flaherty, the market is moderating from a national perspective but Vancouver in particular is really on fire, with Canadian house prices reaching a high after the economic meltdown, spurred by low rates and a strong banking system.

Flaherty told parliament on Monday that we are in a different place than the US where a prolonged housing crisis could unfold. He says that it’s not the case here in Canada because our Government keeps its fingers on the pulse of the housing sector to ensure things stay on track.

This all coincides with Mark Carney’s speech last week at the Vancouver Board of Trade. Again, he avoided saying we’re in bubble territory, but stated that we are heavily indebted and that house prices are 13% above their pre-recession peak. With this, he cautioned that the Bank of Canada will eventually raise its benchmark rate as soon as possible to address the speedy housing activity. People are spending at a much faster pace in a low interest rate environment, but the key point to consider is that these rates will rise and affordability will diminish.

Flaherty has stepped in a number of times since the recession and implemented new rules to help stem the fast pace of growth, looking to avoid the dreaded bubble and subsequent collapse as witnessed by our neighbors to the south.

The big statement from Flaherty was that from time to time the market needs to be calmed down, and basically with the last three rounds of changes they’ve accomplished what they’ve set out to do and we can expect the Government to lay low in the near future. Along with the changes in policy, the future increase in rates will do its own to stall the marketplace.

The Bank of Canada’s bi-annual Financial System Review released this week noted that such a long period of low interest rates may fuel excessive risk-taking, remarking that as a country we are more vulnerable to interest rate shock since their last report in December of 2010.

However, according to recent numbers from Statistics Canada, Canadians are still sliding further into debt as of the last quarter. This is the result of the super low interest rate environment we are currently sitting in. Even though the extension of credit has started to slow, we’re really swallowed by debt with a debt-to-income ratio of 147%, meaning for every dollar of income we are in debt $1.47.

The good news is that in a recent survey by CMHC that many Canadians are preparing to adjust to higher interest rates by budgeting their finances and preparing for things like job loss and interest rate hikes.

So even though we’re at peak levels of household debt, both Carney and Flaherty believe that the recent changes regarding the mortgage industry and the impending interest rate hikes will be more than enough to cool our housing market and credit markets to a more sustainable level.

We Wish all will remain well for the housing market activity

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