Don’t clamp down on home mortgage regulations, federal government urged

Wednesday, December 30th, 2009

Derrick Penner

The mere hint that federal Finance Minister Jim Flaherty might step in to tighten mortgage requirements to cool an overheated housing market has sparked a lobby urging him not to do it.

Steps to raise down-payment requirements and shorten mortgage amortization periods could do more damage than the problem Flaherty is trying to stem, the Mortgage Brokers Association of British Columbia (MBABC) said Wednesday.

Late last week, Flaherty, in an interview with Canwest News Service, said the government is watching and remains ready to make changes in mortgage requirements if the boom in housing sales becomes a bubble.

Low mortgage rates, Flaherty said, are helping to push home prices up, and he is ready to act on down payments and mortgage amortization periods if that trend gets out of hand.

However, MBABC president Joe Santos cautioned Wednesday that much of the heat Flaherty is seeing in the market has already been spent and that the finance minister should wait before making any decisions on mortgages.

“We feel the market is going to self correct,” Santos said, “just because the affordability [of housing] isn’t there anymore and, really, the economic news isn’t that strong.”

Santos said the pent-up demand for housing from the buyers who fled the market during 2008’s sales collapse, combined with buyers jumping into the market sooner than expected to take advantage of record low mortgage rates have driven the buying binge and driven prices up over the last half of 2009.

“But we’re into December now, and things [in the market] have slowed considerably,” Santos added.

Going into 2010, Santos said the association’s expectation, in keeping with forecasts from the B.C. Real Estate Association and Canada Mortgage and Housing Corp., is for sales to ease off, supplies of new listings to increase and prices to edge up more modestly.

Santos said one fear in the industry is that if Flaherty were to step in too soon and clamp down on mortgage qualification criteria, that would put an unnecessary dent in the market.

“There are a lot of things that could happen to soften up the economy,” he added, “and [a slowdown in real estate sales] is one of them, because real estate and construction does have a big impact on the economy.”

However, the concern on Flaherty’s side is that the recent surge in property sales, fuelled by rock-bottom mortgage rates, is encouraging Canadians to take on levels of debt that they won’t be able to maintain once rates rise.

That is the warning Bank of Canada Governor Mark Carney has sounded on a couple of occasions in December.

Carney, in a regular Bank of Canada discussion document and in a speech to an elite Toronto business audience, noted that the amount of debt that Canadians are taking on is increasing just as the economy is coming out of recession.

That amount of debt, he added, makes consumers more vulnerable to a financial squeeze once interest rates, set at low levels to try and stimulate the economy, rise.

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