Tuesday, 04 December 2012 09:56

Flaherty echoes investor reaction to slowdown

Written by  Vernon Clement Jones
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Jim Flaherty’s reaction to a cooling real estate market may mirror that of landlords, with the finance head suggesting he’s “happy” about the slowdown.

“Less demand, lower prices, modestly, in the housing market are much better for Canadians than a boom followed by a bust,” he said early this week. “The housing market has softened somewhat in part because of steps that I’ve taken and I’m happy about that.”

The reaction comes to a 3.5 per cent annualized drop in the housing sector. Activity across many of the country’s major markets has also seen dramatic year-over-year falls – what Flaherty sees as the kind of controlled slowing needed to overt a more pronounced and severe correction.

For property investors, the slowdown has meant increased demand for rental units as first-time buyers find themselves shut out of the market.

The mortgage-rules revamp in July is largely to blame for that housing retraction, say mortgage brokers, they point to the effects a new, lower amortization ceiling for insured mortgages has had on first-time buyers.

The decline also reflects that for the broader economy, with StatsCan reporting growth in the third quarter rose 0.6 per cent – well off of projections and representing the third quarterly decline for 2012.

Far from blaming those tighter rules, Flaherty is “crediting” them for reining in a sector helping drive Canadian household debt to historic highs.

“I'm all for a soft landing," he said.

Last modified on Wednesday, 05 December 2012 16:27

8 comments

  • Trevor Tuesday, 11 December 2012 10:14 posted by Trevor

    Here is an idea for Canadians - live within your means. I changed my behaviour dramatically after the crash. I will never take a car loan again and I have no credit card debt. The only borrowing I do is to invest. People who have to "same size" as previous submitter said just want more (consumer goods) than they can afford. Stopping people from refinancing their home above 80% forces them to create equity.

  • Deborah Lyver Monday, 10 December 2012 19:34 posted by Deborah Lyver

    Canadians now are forced with paying out debt on high interest rate loans and cards.....I have had many fortunate clients who refinanced using their home equity and never ran into trouble again...sadly the new rules will no longer give Canadians that option.

  • A.Rahman Monday, 10 December 2012 17:58 posted by A.Rahman

    Well said Roy... This is not helping the average Canadian trying to get out of debt and hoping to own his first house... More restrictions should be placed on credit cards limits and interest rates.

  • LanceH Monday, 10 December 2012 16:55 posted by LanceH

    Hi Roy. I used to write the exact same things as you, but have since modified my opinion. I think gov's CAN modify ppl's behaviour through legislation. He doesn't want ppl consolidating, so's they can turn around and re-wrack the cc's. By creating these restrictions, folks will be eager to pay down the 24% debt first - exactly what he wants. As for those that are habitual debtors, you're right, nothing will change their behaviour, but if they're forced to sell while having 20% equity and so be it - folks like that will end up in that spot eventually anyways. The folks I feel for, is the one's we have to do a 1st / 2nd say to 85 or 90%. They won't be able to consolidate their mtgs. They'll be stuck with the expensive 2nd til they buy it down or pay it off outright. That's tough, but no legislation is perfect.

  • Brian Matthey Monday, 10 December 2012 16:53 posted by Brian Matthey

    There is a side effect of these rules changes not being seen yet but it will become more common .We call it "samesizing" in the housing market.I have already had two clients who will be faced with selling their homes to rid themselves of their debt load.
    Ironically,they will retain 5% from the proceeds and be able to qualify for a new home purchase as their credit and income is fine.
    In both cases,banks lent to them without any concern for their total debt load and any concern about counselling them on their credit.The banks knew they were in no danger of having their debt liquidated through refinancing and were very eager to increase their unsecured lines of credit and their credit card limits.
    I agree with Roy.These changes will not reduce household debt.
    It will increase delinquency and result in higher profits for the banks.
    So why are these clients forced to sell and rebuy with 5% down when they are not considered a good risk at a 95% refinance?Both of these clients could have been accommodated at 90% LTV.
    A boon for the real estate market, but a definite shame for the client who is forced to uproot their family and pay all the associated costs of selling and rebuying including real estate costs,land transfer tax,moving costs etc.

    There will be more of this to come under the current guidelines.

  • Marcel Duguay Monday, 10 December 2012 16:42 posted by Marcel Duguay

    I agree with the previous comment, The gouverment can't (Handle The Truth) That is why the Bank are doing all of these Billions in profits on the back of hard working Canadians.

  • Susan Jackscha Friday, 07 December 2012 00:19 posted by Susan Jackscha

    Well said Roy. Too bad media is not printing these types of comments!

  • Roy Singh Thursday, 06 December 2012 16:18 posted by Roy Singh

    It is funny how he smiles about this and claims how the mortgage rules will reduce house hold debt. This goes to show how out of touch he is or he is just smoke and mirror for the major banks?
    You cannot legislate human behavior and what he has done by changing the mortgage rules is prevent Canadian from refinancing high interest rate debt (credit card debt) with low mortgage debt. This is very dramatic as a few years ago a consumer can refinance up to 95% of their home’s value to pay off credit card debts.
    So instead of the consumer paying 3% on a mortgage they are now paying 24% on $30,000 of credit card debt or an additional $6,300 per year in interest. Add to this that you have to make these payments from after tax dollars an average person would have to earn $12,000 before tax to make this payment.
    So who is to benefit most from these rule changes, Oh, yes the banks because if consumers cannot refinance the high credit card debts, they have no choice but to continue paying or default! Is it then coincidental that the banks are reporting record profits! If he truly is concerned about debt and consumers, he needs to reduce how much credit a bank can offer consumers on credit cards using a debt service ratio and force the banks to cut interest rates on this product.

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