Well, it looks like people can put off any talk of a housing bubble. If Canada were in one, the government and the CIBC have started to deflate it by now making it that much harder to buy a home. It’s not impossible no; and we’ve certainly had tighter rules and way, way higher interest rates (anyone remember 1980?) But yes, it is harder to buy a home now than it was even a year ago. Some of it has to do with CMHC’s announcement this week that they’d be cutting back on mortgage insurance; and now, CIBC has also made an announcement of its own – it will no longer be offering mortgages to the self-employed, or to new immigrants through its FirstLine branch; that is, the channel between mortgage brokers and the bank.
While the announcement by the major bank (and the one that holds the second-highest amount of mortgages in Canada) didn’t single out the self-employed and new immigrants specifically, it will be those groups that feel it the most. CIBC has said that they will no longer be offering “stated income” mortgages; a mortgage in which an individual can simply state what their income is rather than have it verified through an employer or other documentation. In addition to that, the bank has also placed a $1 million cap on the home loans they’ll offer, something that’s not likely to be felt nearly as much.
This announcement falls right in line with both Finance Minister, Jim Flaherty’s, warnings about rising household debt levels, and the tougher restrictions placed on mortgages and HELOCs early last year. And, it’s an announcement that many think other major lenders will follow, especially the part about no longer offering stated income mortgages. All of it is a reaction to the housing bubble that many Canadians and banks think we’re in. With the exception that is, of BMO, the first bank to offer the latest major discounts on mortgages. BMO said last week that they in fact did not think Canada was in a housing bubble; that it’s closer to a balloon that’s more likely to deflate than to pop.
That might be true. While there is still interest in the market, and it seems that interest is going to at least stabilize if not grow, these new rules will certainly make it more difficult for buyers to flood the marketplace. That however, will cause the “overvalued properties” (deemed as such by Mark Carney himself) to come down in price, which will help save homes from going underwater once the values return to normal; that was the biggest problem in the United States when their housing bubble burst. So even if Canada is in the bubble that so many people seem to think we are, the BMO is probably right too, in that the bubble will not burst, it will simply deflate more and more until our housing market gets back in line again. And isn’t that what we’re ultimately seeking? Even if it does mean tighter mortgage rules along the way? Isn’t that better than getting ourselves into the catastrophic situation that the States were in?
