In an interview with CTV’s Question Period yesterday, Finance Minister indicated that he is keeping a close eye on the red hot real estate market. He is concerned that if “excessive demand” takes place consumers may not be able to handle the payments should rates rise in the future. In the interview he mentioned some possible things that he may do to “cool down’ the housing market.
Two items mentioned is the possibilty of reducing the allowable amortization (currently at a 35 year maximum) and/or requiring a larger downpayment (currently at a minumum of 5% of the purchase price).
In my opinion, changing either of these would not be of service to consumers. There is currently no indication of a “significant surge” of mortgages in default despite Canada being in the most serious recession in decades. Industry stats also indicate that more and more buyers today are choosing longer term fixed rate mortgages because of the current low rates. This will cushion them in the short and medium term future from any rate increases.
Based on my own recent clients’ choices, more than 90% of my buyers are taking the 5 year fixed rate term. 100% if we only counted first time homebuyers. This despite that I, as a normal course of consultation, show and explain to them the benefits/negatives of taking a variable rate mortgage.
Keep in mind as well, changes like those mentioned in the interview, will have a serious impact on buyers in major markets such as Vancouver. The real estate prices are so high here that for many even saving the minimum required 5% (which has been in place for a long time) is a burden already. Increasing the downpayment requirement may preclude many from the dream of owning a home.
Historically, Canadians have proven that they are reliable in the payment on mortgages for their own homes. This despite the economic downturns that always inevitably take place. I believe that the government should look at ways to help more Canadians own their own homes and not make it more difficult.
Until such time that home owners prove that they are not responsible, changes are not necessary.
Otherwise the only ones that benefit are the landlords.
The full interview will be shown on this week’s upcoming CTV News Question Period but here is a short clip: