When Mr. Flaherty made his changes to mortgages in Ottawa last Thursday, most of the banking industry and economists in Canada praised the move. But there are some in the industry, such as those over at Moody’s Investors Services, that say the moves are simply too late to have much impact.
It was in their weekly credit outlook report that Moody’s analysts William Burn and Andriy Stepanyants said that shorter amortization periods on insured mortgages will help cool the housing market in the short term; and that banks will profit as borrowers take out less in home equity loans and second mortgages. This last point in particular says the analysts, will give banks “an equity buffer the banks can access if necessary through the sale of the property.”
But, they say, as positive as the moves are, they may have come too late. “However,” Burn and Stepanyants say in their report, “the government’s moves may have come too late, owing to the build-up in consumer debt that has already occurred.” The two analysts also say that it will be an additional challenge to homeowners who are trying to pay their debts, now with slower income growth.
The Moody’s analysts concluded with Mark Carney when they said, “Canadian consumers’ reliance on low interest rates to support high debt loads remains a risk.” They then referred to the fact that the Bank of Canada has stated that a 325 basis point rise in interest rates by 2015 would push the percentage of households with a debt service ratio of 40 per cent or higher to 20 per cent. Currently, only 11.5 per cent of Canadian households have a debt load of this amount.
But when you take in the debt numbers and percentages, do they really reflect that the new changes came too late? Is that really the message that Canadians should take away from it? Probably not. Looking at the percentages dealing with debt, perhaps Canadians should take away from it that we’re simply getting in over our heads. Spending too much, saving too little, and not worrying about the day when interest rates will raise are all extremely dangerous practices for any household. Yet we keep hoping that the rates will remain low and that we can continue to borrow.
Perhaps the problem is not that the new mortgage rules came too late. Maybe the problem is just that it’s taking far too long for us to get the message that we’re in far too deep. And maybe we shouldn’t have let it get so far that the government had to tighten the reigns in the first place.
