A downward trend in new home construction reported by the Canadian Mortgage and Housing Corporation (CMHC) may provide Bank of Canada governor, Mark Carney, further cover “to hold interest rates steady through at least the end of this year,” writes Alex Carrick in the Journal of Commerce.
Housing starts in October (at 167,900) were at their lowest level in over a year, and 9.2 per cent lower than September starts. Housing starts, which have been trending lower for the past seven months, have been negatively impacted by at least the perception of reduced home mortgage affordability. Mr. Carrick cites higher taxes on residential real estate services (due, presumably to the HST), the perception of higher interest rates, a relatively large inventory of unsold units, and “more stringent guidelines with respect to mortgage approvals” as factors that have triggered the accelerating decline in housing starts.
The public position taken by Mr. Carney, may also have exacerbated the decline in new home construction. The Bank of Canada governor has “been vigorously warning Canadian households about taking on to much debt,” Mr. Carrick notes, and has “expressed concern that the debt-to-income ratio for homeowners is too high, based on international comparisons.”
While current interest rates may have “contributed to a false sense of security” amongst potential new home buyers, and “there is[some] potential for significant problems when interest rates climb back to normal,” as Mr. Carrick notes, these views are not universally held.
As we have noted, survey results from the Canadian Association of Accredited Mortgage Professionals indicate that most Canadian households have a goodly amount of home equity, and the vast majority of homeowners have room in their household budgets for higher mortgage payments as interest rates rise. Moreover, economists at BMO Nesbitt Burns project that the current divergence of the ratio of home-prices-to-household-income from historical norms is likely to close over the next several years it will take for mortgage rates to return to normalized levels.
As the BMO economists note, Canadian housing is “pricey, not dicey,” and a well-resourced mortgage broker will be able to help homeowners find the highly affordable construction loan that will finance construction of their dream home.
