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Harper’s mortgage policies at the root of Canada’s housing bubble: Garth Turner

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guest | 20 Jul 2011, 03:53 PM Agree 0

“People who believe we do not have the potential for a significant correction are just not paying attention. It’s getting more dangerous by the week,” Turner told CRE Online. In 2006, the Tories included a provision in their budget allowing mortgage insurers, which included Genworth, the Canada Mortgage and Housing Corporation and the now-defunct Canadian arm of AIG, to insure these high-ratio mortgages. The Conservatives, at the time, asserted the policy favoured a free-market approach by allowing mortgage insurers to decide who they would and would not insure. But Turner, who sat on the finance committee during the budget deliberations, objected to the policy, saying that its unintended consequences far outweighed its benefits. “I thought that it would create a problem because at that time the American market was starting to disintegrate because of a lax lending system that had been brought in,” said Turner. “And here was Canada duplicating that standard. And I felt that zero-down, 40-year amortized mortgages was going to make it too easy for the real estate market to become excessive and lead to a downturn.”Canadians, like Americans, jumped at the chance to purchase a home, even if it meant putting zero down and signing onto a mortgage that would take a lifetime to pay off.The Harper government soon realized, however, their policy was allowing too many Canadians to take on excessive amounts of debt too quickly, Turner said. That’s why they reduced the amortization requirement to 35 years in October 2007, he added. “In reality, it created a real estate bubble. And the bubble surfaced immediately after those changes were made.”During the 2008/09 financial crisis, the Bank of Canada further exacerbated the problems in the housing market by lowering interest rates to emergency levels to stimulate the economy.  To cool the market off even further, Finance Minister Jim Flaherty announced an additional reduction in the amortization requirement, bringing it to a 30-year term, with the introduction of the government’s new mortgage rules in March. But the damage had already been long done, Turner said. “That’s why a single-family home in Vancouver cost a million dollars. You can thank the Bank of Canada and Mr. Flaherty because no one else is responsible. And that end of the day I believe it just hurt Canadians.”
  • Vera Penny | 21 Jul 2011, 02:35 AM Agree 0
    I totally agree with Garth, and am worried when this bubble will burst. Only saving grace is, the whole mess is too big to fail now. With so many people having zero equity in their homes, any price drop will create walk-aways en mass, and we've already seen that happen in the US.
  • Vera Penny | 21 Jul 2011, 03:35 AM Agree 0
    I totally agree with Garth, and am worried when this bubble will burst. Only saving grace is, the whole mess is too big to fail now. With so many people having zero equity in their homes, any price drop will create walk-aways en mass, and we've already seen that happen in the US.
  • Picasso | 21 Jul 2011, 10:54 AM Agree 0
    "With so many people having zero equity in their homes, any price drop will create walk-aways en mass, and we've already seen that happen in the US."



    Bring it on, can't wait for the party to begin!
  • Picasso | 21 Jul 2011, 11:54 AM Agree 0
    "With so many people having zero equity in their homes, any price drop will create walk-aways en mass, and we've already seen that happen in the US."



    Bring it on, can't wait for the party to begin!
  • John Smythe | 21 Jul 2011, 12:29 PM Agree 0
    People who've been paying attention and not just listening to the media/govn't like mindless lemurs, know this and have taken the necessary precautions. They will be the ones who come out ahead.... Far ahead.
  • Lester | 21 Jul 2011, 12:33 PM Agree 0
    Garth Turner is THE MAN!
    Thanks to him we've saved an enormous amount of money (after paying rent for a house we would be fools to buy). We are living in a beautiful home, saving money, secure and liquid. Life is good!

    SHAME on Harper and Flaherty for allowing this to happen. They orchestrated the whole thing and families (and children!) will pay as a result, for decades. It's Criminal!
    Stupid Canadians don't know what's going on... Sad!
  • John Smythe | 21 Jul 2011, 01:29 PM Agree 0
    People who've been paying attention and not just listening to the media/govn't like mindless lemurs, know this and have taken the necessary precautions. They will be the ones who come out ahead.... Far ahead.
  • Lester | 21 Jul 2011, 01:33 PM Agree 0
    Garth Turner is THE MAN!
    Thanks to him we've saved an enormous amount of money (after paying rent for a house we would be fools to buy). We are living in a beautiful home, saving money, secure and liquid. Life is good!

    SHAME on Harper and Flaherty for allowing this to happen. They orchestrated the whole thing and families (and children!) will pay as a result, for decades. It's Criminal!
    Stupid Canadians don't know what's going on... Sad!
  • Kilby | 21 Jul 2011, 02:24 PM Agree 0
    We were lucky to sell our house in the Okanagan this spring for $100k less than appraised value. Will not replace until at least 2012 as area where we are interested has prices dropping daily. Renting feels pretty good now. I blame Jim Flaherty and the Conservatives for causing this whole bubble, they could have let it happen 2 years ago but are exacerbating the problem by putting off the"adjustment"
  • Kilby | 21 Jul 2011, 03:24 PM Agree 0
    We were lucky to sell our house in the Okanagan this spring for $100k less than appraised value. Will not replace until at least 2012 as area where we are interested has prices dropping daily. Renting feels pretty good now. I blame Jim Flaherty and the Conservatives for causing this whole bubble, they could have let it happen 2 years ago but are exacerbating the problem by putting off the"adjustment"
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