Just about everyone has been hurt by the mortgage rules that went into effect this summer, right? Buyers can no longer afford homes because their down payment isn’t large enough, and sellers don’t have nearly as many people to sell to – let alone stir up a bidding war. But aside from Finance Minister, Jim Flaherty, who put the rules into effect in the first place, there’s one more group that’s going to be helped by the new rules. And Fitch Ratings says that will be our banks.
It doesn’t make a lot of sense at first, does it? Fewer mortgage customers out on the market means fewer of them are filing into banks to take out loans that the bank can then profit from out of interest costs. But it’s a matter of short-term versus long-term. Yes, the banks probably will be a bit slower for the next little while, but business will pick up once again. And along with keeping homebuyers from getting into too much trouble, the mortgage rules have done the same thing for banks.
Without lending at unheard of volumes, and giving out mortgages faster than they ever have before, the banks lower their own risk. After all, everyone knows that if a mortgage holder defaults on the loan, it’s the bank that’s going to end up paying, right? And as the number of approved mortgages goes up, so does the bank’s risk in most cases. These rules lower the amount of buyers, thereby lowering the banks’ risk as well. Fitch Ratings says this is currently happening, and that’s evident by the number of sales Canada is seeing right now. Or rather, not seeing.
“The latest sales numbers provide some initial evidence that risks of near-term overheating in the Canadian housing market may be subsiding,” the agency said in a report. “This could be a positive development for Canadian financial institutions as long as the labour market remains relatively stable.”
Initially, the news doesn’t sound all that good at all. But it’s true. By slowing the amount of borrowing going on, banks can reposition themselves and start to hone in on another real problem: homeowners that are drowning in too much mortgage debt. Once that gets under control and our household debt starts to go down, our economy will really be booming. Or that’s the way it’s supposed to work out at least.
But as Fitch Ratings says, it’s all dependent on our job market remaining stable. And not only did the unemployment rate increase for most parts of the country this past month, but 115,000 construction jobs have already been lost due to the cool down, according to Capital Economics.
So it’s a mixed bag of good and bad news. But really, when talking about our housing market, our banking system, or our economy in general, do you ever really expect it to be all rosy all the time?
