Central 1 Credit Union’s chief economist Helmut Pastrick
told Financial
Post that he doesn’t anticipate a price bubble in the housing market as is
being predicted by economists and major Canadian banks.
Economists have expressed their concerns over the large
ratio of household debt to income among Canadians. This ratio is the highest
ever and the same level as was seen in the United States just prior to the
collapse of the real estate market. Mr. Pastrick argues that there is a
fundamental difference between the U.S and Canadian mortgage industry,
especially in terms of the presence of subprime mortgage lenders
and mortgage securitization.
Canada’s big banks have warned that mortgage lending should
be tightened in the light of the rising household debt. They have lobbied with the
federal government to introduce measures in the forthcoming budget to slow down
the pace of home loan approvals as they fear that an interest rate rise or a drop
in employment level will adversely affect borrowers’ ability to meet
repayments. The government has already lowered maximum mortgage amortization
from 40 years to 35 years and now requires borrowers to qualify for a 5-year
fixed rate mortgage regardless of whether they have applied for a shorter term.
Mr. Pastrick argues that it was unnecessary to tighten
mortgage lending criteria, which would slow down the housing market and
consequently, the economy. He reiterated the importance of this sector, saying
it was one of the major driving forces behind the economy. He said that the
real estate industry generated a significant number of jobs, from manufacturing
to construction and sales. A slowdown in this sector would result in a dip in
employment levels and affect the economy.
