New mortgage rules will ‘reduce the risk’ a housing crash poses to Canada’s economy
Housing market remains hot
Canada’s finance minister believes the housing market remains hot, but healthy. It just needs a little more regulatory care to keep it that way and not harm the economy in the process.
Adjusting of existing rules
For now, Bill Morneau’s prescription calls for some gentle adjusting of existing rules – like closing a tax loophole on non-resident real estate investors – along with new measures, such as a mortgage-rate “stress test” to ensure hopeful buyers can afford to get into the market in the first place and meet their payments when lending levels begin to rise.
These measures should reduce the risk
“Overall, these measures should reduce the risk of a knock-out to the Canadian economy from a possible correction in Vancouver and Toronto, “ said Sal Guatieri, senior economist at BMO Capital Markets, following the minister’s announcement of the changes on Monday.
“There’s enough here (in the new rules) to slow the markets – especially foreign demand in those markets,” Guatieri said. “But what these measures will also do is reduce the risk of a correction down the road should prices in those two cities continue to rise at double-digit rates.”
Cooling the market
Both the federal government and the Bank of Canada have been attempting to cool the housing market in the post-recession environment of low-for-longer interest rates. Ottawa has attempted to rein in the market through progressively tighter regulations the length and levels of mortgages, particularly in Vancouver and Toronto where prices of homes have been on a steady upward trajectory – even as interest rates have remained at near-historic lows.
Rates will eventually go up
Stephen Poloz, the central bank governor, has been at pains to remind Canadians that Interest Rates will eventually begin to go up and borrowers need to stay within their ability to manage mortgages at higher rates.
Changes announced Monday, which come into effect October 17, will “certainly add some prudence” to the housing market… by beefing up the so-called mortgage stress qualifications, “Guatieri said.
Pricing out buyers?
“It clearly will price-out buyers in some high-priced regions in Canada – obviously Toronto and Vancouver. So, that will go some ways, I believe, to cooling the markets in those two regions.”
How can we help?
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Original Article – Financial Post
