It’s no secret that Finance Minister has been the driving force behind the changes made to HELOCs and other forms of borrowing made within the last year. He, along with many others in Ottawa, is concerned that our housing prices are too high, our interest rates are too low, and it’s causing us to take on more debt than we need to. And while we have responded to his concerns by lowering our credit debt, he’s still concerned. And this time, it’s mostly the condo market that’s got him worried.
Recently the Finance Minister sat down with 13 economists in Canada to get their forecasts and predictions for the 2012 economy. There were some disagreements, as Mr. Flaherty admitted that he thought, “There has been some moderation in the housing market. I remain concerned about the condo market, quite frankly.” He wouldn’t be the only one. Vancouver has seen a huge increase of condo starts and, due to the high prices, vacancy rates that leave those condos sitting empty for months at a time. And Toronto has the same problem, although on a smaller scale. Mr. Flaherty didn’t impose any new mortgage rules at the time, but the economists in the room with him were at divided as to whether or not they think he should.
Derek Burleton, deputy chief economist at Toronto-Dominion Bank, says that mortgage rules do need to be tightened for a fourth time. (Yes, it’s been three times in the last year and a half that mortgage rules have changed.) According to Burleton, shortening amortization periods from 30 years to 25 would help the problem, just as it did the first time Ottawa shortened amortization rules. But another economist present at the meeting thought differently.
Avery Shenfeld, chief economist at CIBC, thinks that Canadian consumers and homeowners are just starting to adapt to the new mortgage rules, and that the government must give enough time for those rules to be carried out, and for the economy to start seeing the effects. Shenfeld also addressed the Finance Minister’s concerns about the condo market, and overvalued home prices, saying that you might find Toronto mortgages to be a bit higher, Vancouver’s market skewed, Ottawa mortgages to be above the norm, and perhaps a few other major Canadian cities. For the most part though, Shenfeld defended, our housing market is correcting itself, and time is all that’s needed.
At the end of the meeting, no rules were officially tightened, but Mr. Flaherty ended with his habitual warning that, “Interest rates are relatively low, so I again encourage Canadians to be careful in the amount of debt they take on in terms of residential mortgages. Because rates will go up some day, and I would not want people to get caught.”
What do you think? Do our mortgage rules need to be made even stricter?
