Silence!
Posted February 15th, 2010 in Real Estate, Sharing the Experience | 
Expectations
You knew it was going to happen! Economists, financial advisors, politicians, and the Chair of the Bank of Canada said it would. Tomorrow, according to Julian Beltrame of the Globe and Mail, is the day!
“Sources have told The Canadian Press that Finance Minister Jim Flaherty is ready to move on the issue because of concern Canadians may be taking on too much debt.”
How Will It be Done?
- “Economists have advised the minister the best way to protect Canadians is to institute a debt affordability test in order to qualify for a Canadian Mortgage and Housing Corp. insured mortgage.”
- “Another possibility is for the minister to reduce the amortization period from 35 years to 30, which would have the effect of raising monthly payments.”
What We’re Told
The Economists say don’t mess around with the 5% down as a 10% down requirement could cause a crash. Better methods are to use all the tools now in place.
What Tools?
- amongst others
- capital requirements for institutions
- leverage ratios
- loan-to-value ratios
- terms and conditions for mortgage insurance
Sound of Silence
Canada has waited for an Olympic Gold Medal for a long time. When we finally got one we cheered and cheered. Tomorrow however, when Flaherty rolls the dice, expect to hear a lot of silence as many buyers will be shut out of the gold!
Now if Flaherty is so firm in his belief that there is no bubble, he shouldn’t hold back. If the average home is really worth $500k, and not just because of low interest rates and “loose” mortgage restrictions, then he has nothing to worry about does he? IMO if you can’t afford to save up 10% you shouldn’t be buying anyway.
Ultimately, if property values across Canada drop, is this a bad thing? Sure people will get burned, but that’s life. At the end of the day, if people are spending their disposable incomes on increasing amounts of mortgage debt instead of the local restaurant or theatre or shopping mall, deflating the housing market might eventually lead us to an economic recovery.
Here are the rules:
Under the new rules, all borrowers will need to meet standards for 5-year fixed-rate mortgages regardless of whether they’re seeking a loan with a lower rate and shorter term.
Also, the government is lowering the maximum amount Canadians can withdraw when refinancing to 90 per cent of the value of their homes, from the current 95 per cent, and requiring a 20 per cent down payment for government-backed mortgage insurance on investment properties.
They all make sense to me.
Nermin
as many buyers will be shut out of the gold!
how so?
they may fail in buying an over priced asset
failure = success……
@blueskies- think oxymoron
@Nermin – not much of a change
“The adjustments to the mortgage insurance guarantee framework, to be implemented as of April 19, 2010, are not likely to revolutionize the industry. Indeed, a number of large Canadian lenders already practise the first peg of Flaherty’s plan. After Tuesday’s announcement, Bank of Montreal noted that it requires its high-ratio borrowers to be able to qualify using the five-year rate.” – Globe and Mail
“…as a 10% down requirement could cause a crash. ”
Wow! That says a lot about this market and the value of housing over the longer term.
@vomitingdog – are you suggesting it is tenuous?
i’m suggesting listings grow this spring and sale slow
prices….well, draw your own conclusion
@Data Hound – hmmm that might explain the multiple offer presentation I was involved in this past weekend. 8 folks thought it was undervalued.
Larry
There is one born every minute, or so it seems. The well shall run dry. In time.
52 analysts thought Cisco was undervalued in March 2000….