In an interview with CTV News, Federal Finance Minister, Jim Flaherty, weighed in on the state of Canadian mortgage and housing markets following a recently released report from the Organization for Economic Co-operation and Development (OECD) highlighting the high debt levels of Canadian households.
The OECD cautions that “Canadians [may have] put themselves in a vulnerable financial position because they took advantage of low interest rates during the recession – and bit off more than they could chew,” according to the CTV News analysis.
The OECD reports that, “(t)he rebound in the housing market has been key to Canada’s recovery from the recession,” however, it cautions that the housing rebound “has left some facing a toxic combination of hefty debts and rising interest rates as the Bank of Canada pulls back from the emergency low rates used to juice the economy back to life.”
While recognizing the cautionary tone of the OECD report, Mr. Flaherty downplayed the potential risk to Canadian homeowners, pointing out that mortgage lending rules were tightened in 2008 and again this year in order to deter marginal prospective buyers from jumping headlong into a housing market they could not readily afford. Nonetheless, in speaking with CTV, he pointed out that prospective home buyers must ensure that they can afford the homes they purchase – especially when historically low interest rates inevitably rise.
“Canadians need to remember that mortgage rates are at one per cent with the Bank of Canada, they’re not likely to go lower over time, and people have to be prepared to handle their mortgages when interest rates go up over time,” Mr. Flaherty told CTV’s Power Play.
The OECD report was meant to be “cautionary,” OECD senior economist Peter Jarrett told CTV’s Canada AM. He emphasized that the delinquency rates on Canadian mortgages “remain very, very modest, and [the OECD report] is all in anticipation of what might be coming down the pipe in a year or two,” as interest rates climb.
With the Bank of Canada – alone amongst G7 countries – having raised its lending rate three times in the last year (from 0.25 to 1.0 per cent), and with further rate increases foreseeable in the medium and long-term, homeowners may wish to consult with a mortgage broker to position themselves for rising rates – whether through refinancing an existing mortgage, or by converting from a variable to fixed rate mortgage to take advantage of the current low rates on five-year mortgages.
