Everyone’s talking about the changes to mortgages in Ottawa that were announced by Jim Flaherty yesterday. Once in effect, these rules will scrap mortgage insurance on homes worth over $1 million, as well as on any HELOCs; and the new rules will also lower amortization periods on insured mortgages to 25 years instead of 30. But now that the announcement has been made and the dust has settled, what are experts saying? Most of those in the financial sector are applauding Flaherty’s move, agreeing that something needed to be done. But it may not be surprising to anyone that the opposition party is using this to launch another attack against the Tories. Here’s what everyone’s saying:
Derek Holt from Scotia Capital thinks that the new rules will quicken the housing market in the short-term (rules always do,) and that this is just one more sign that interest rates aren’t going anywhere in the near term. He says,
“Home sales will accelerate briefly over the next couple of weeks before the July 9th implementation period. We are convinced of our view that the BoC is on hold until mid-2013 and with fatter tail risk in favour of a longer hold. Our bias is that strong cumulative regulatory tightening pushes out rate hikes, supports a buy-Canada-bond bias, poses downside risks to CAD, and will materially soften growth in housing, consumer spending, jobs, and add to already evident slowing in credit growth.”
Craig Alexander is a chief economist at TD Economics; and of all the experts that have voiced concern over the housing market, he’s been the loudest. He has repeatedly called on Mr. Flaherty to tighten mortgage rules once again so it comes as no surprise that he’s in favour of the newest changes. Mr. Alexander said,
“We view the changes announced today as a prudent decision to address the increasing risks from consumer debt growth. The regulatory action helps to take pressure off the Bank of Canada. The rapid personal debt growth in recent years has been fueled by strong real estate markets in a sustained, incredibly low interest rate environment. Since the imbalance is concentrated in real estate, monetary policy would be a blunt tool to address the concern. Tighter regulations could target the risk more directly.”
But not everyone is singing Jim Flaherty’s praises. Interim Liberal leader Bob Rae was very vocal over his displeasure with the announcement. Mr. Rae said,
“This is Mr. Flaherty vs. Mr. Flaherty. He has done all of this. He’s the guy who has let it go up and is now bringing it dramatically down again. We are now at the same situation we were – what do you know, 2006 – where we had 25 year mortgages. There’s going to be a real issue as to exactly what message this is sending to markets and what impacts it will have.”
What’s your opinion on the new changes? Are they exactly what the Canadian market needed? Or do you think these steps taken by the Conservative government are just measures to undo what they have done?
