For nearly two years Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney have been warning us about the amount of debt we’ve been taking on, in both mortgage debt such as home equity lines of credit, and consumer debt such as credit cards. And while the warnings came with each new quarterly report and both officials seemed to be getting more frustrated with us, now it seems we might be taking heart. And the Finance Minister has noticed, as he stated at a press conference regarding Canada’s economic performance in the second quarter.
“I think Canadians are increasingly getting the message that at some point interest rates are likely to rise,” says Mr. Flaherty. “But other things are going on, too. I remain concerned about people taking on larger obligations than they would be able to afford were interest rates to go up, as they inevitably will.”
He also added that while we’re “starting to understand the risk there,” it’s also “prudent not to overextend oneself.”
It was for this very reason that Flaherty tightened up the mortgage rules in June. And, while he says that it’s too soon to tell whether or not those rules are what’s helping keep us afloat, he did say that they’ve had the dampening effect on the condo market that he had hoped for. He also commented that this can be seen particularly in Vancouver, the city that’s had the most concern directed towards it over the past several years.
“That’s desirable,” the Finance Minister said at the press conference, referring to the cool-down. “It’s better to have some softening in the market rather than have sudden movements.”
Something all Canadians will be thankful for is that Flaherty didn’t mention that there would be any further tightening of the mortgage rules. And there probably won’t be given the recent softening. However, interest rates are going to start to rise at some point, and a recent survey shows that many Canadians, should they keep their debt levels where they are, won’t be able to handle it.
That survey questioned 1,000 respondents by phone asking them about their debt levels, interest rates, and how stable they would be should those rates rise. 48% replied that an interest hike of any proportion would be difficult for them to manage.
So while the news from the press conference is generally good overall, there are obviously still some signs of concern. Luckily, Jim Flaherty’s concerns have been reduced some. And because that will most likely mean no further mortgage tightening for some time, the concern on the part of Canadians should also be reduced some.