As
tougher mortgage rules slow housing market, critics call for a reversal
Garry
Marr | Financial Post Nov 26, 2012
The
real estate industry has ramped up its attack on rules making it harder to
borrow but its challenges face one big obstacle — mortgage restrictions are
working exactly the way the federal government wants them to.
In
the past week the Canadian Association of Accredited Mortgage Professionals
weighed in with complaints that Ottawa’s restrictions were killing consumer
confidence and even raised the stakes further by suggesting the entire Canadian
economy was at stake.
Toronto
builders joined the fray calling out the federal government for rules it
maintains have a lot to do with the cooling market in the city that saw sales
in October dip 14% below their long-term average. But Finance Minister Jim
Flaherty has given no indication he is ready to reverse course on his tightened
restrictions. There’s also the argument that it wasn’t the rules that have
sabotaged the market, but rather an overall
fatigue from consumers when it comes to real estate.
“I
think the government is not responsible, remember the housing market was
slowing already when the government introduced these [latest] measures,” said
Benjamin Tal, deputy chief economist at CIBC World Markets. “In a slowing
market, it is that much more effective. It was a prudent move.”
Among
the changes instituted by the government was a lowering of allowable
amortization from 30 years to 25 years for consumers borrowing with mortgage
default insurance which is backed by the federal government. A longer
amortization allows consumers to lower their monthly payment and qualify for a
larger loan at the expense
of paying more interest over their mortgage period.
Mr.
Tal said there is something to be said for a “natural slowing” of the market
which was probably accelerated by the latest changes. “It might mean a little
bit of over shooting but that’s the risk that you took,” he said, adding the
real question is what happens when interest rates rise or other factors impact
the market.
It’s
not impossible the government could switch gears and stimulate the market. It’s
hardly unprecedented. In the past, Ottawa allowed amortization lengths to
stretch to 40 years and, significantly, it lowered the minimum down payment
needed by consumers to avoid costly mortgage default insurance from 25% to 20% —
something that remains in effect. And, to this day, consumers still only need
5% down to qualify for a mortgage if
they buy such insurance.
All
of this will probably do very little to satisfy the critics who maintain Ottawa
stepped in at the wrong time. CAAMP,
among others, suggests the latest rule modifications have squeezed the
first-time buyer out of the market. CAAMP said 17% of the high-ratio mortgages
funded in 2010 would not qualify today, including 11% of
prospective high-ratio homebuyers who wouldn’t qualify under the new 25-year
amortization rule.
“The
government in general is walking a tightrope here. On the one hand they are
concerned about household debt and all these insured mortgages. But on the other
side, housing is an important contributor to the overall economy,” said Jim
Murphy, chief executive of CAAMP, which noted in a previous report that 18% of
all jobs in Canada created between 2006 and 2011 were related directly or
indirectly to housing.
Some,
like CIBC’s Mr. Tal, suggest maybe it’s time the economy stopped being so
dependent on the housing market for growth. One
executive who says he’s changed his tune on the government’s crackdown is Phil
Soper, chief executive of Royal LePage Real Estate services. When the latest
regulations came out in July, he was one of the first to suggest the time was
wrong, but he’s gone full circle since then.
“At
the time, I thought it didn’t make sense,” said Mr. Soper. “I’m being contrary
again. I think the impact of mortgage regulation is being blamed far too often
these days in what is clearly just a natural cyclical slowdown in the market
driven by overpriced homes. We were due for a slowdown. The timing was
unfortunate but it’s not a major event. I think chances of it being reversed
are close to zero.”
“Helping
you find a mortgage and peace of mind”
Domenic
Mirabelli
Mortgage
Intelligence416.303.4480
domenic.mirabelli@migroup.ca
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