Ottawa Changes in Mortgage Rules Too Late to Avoid Housing Bubble
In an effort to prevent a U.S. style housing bubble, the Canadian government has announced that as of October 15 2008, it will no longer back mortgages with amortization periods longer than 35 years.
The government first introduced mortgage insurance in 1954 through the Canada Mortgage and Housing Corp. (CMHC) in order to help Canadians who did not have enough down payment to qualify for loans from the banks.
Once again the government’s move comes too late and it is trying to “close the barn door after the horse has escaped”. Sales have begun to decline in most Canadian markets.
In central Toronto’s C-10 area which covers Lawrence Park, Davisville Village, Wanless Park and North Toronto there are 860 homes sold on average each year.
As of July 2008 this number stands at 270 sales, representing a 68 % drop in sales numbers.
Other areas such as Leaside are showing similar decline in the number of homes sold. For the last five years Leaside has averaged 450 home sales a year. Today the number stands at 104, representing a whopping 77% decline as of July 2008.
Short of having another surge in real estate sales for the balance of 2008, we will not be able to see the numbers we have grown accustomed to in the last five years.
Also, Canadian consumer confidence has dropped to its lowest level in 13 years according to the latest survey by the Conference Board of Canada index released July 8, 2008.
Now the federal government is under increased pressure to increase interest rates in order to contain inflation caused by fast rising oil and food prices, which will further add to the slow down in home sales.