Posted: February 16, 2010, 10:10 AM by Eric Lam
Real Estate, Bank of Canada, Mortgages, Finance Minister, Jim Flaherty
Federal Finance Minister Jim Flaherty announced Tuesday new rules designed to make it tougher for first-time homeowners to get a mortgage, but stopped short of confirming a housing bubble in Canada. Here's what Canada's friendly neighbourhood economists have to say:
Derek Holt and Karen Cordes, economists, Scotia Capital
These rule changes will combine with several other factors to raise the odds of lower house prices arriving by 2010H2 and into 2011 and should probably give rise to lower forecasts for resales and starts. Those other factors include the return of supply through rising housing construction and resale listings, Scotia Economics’ forecast for 200bps in higher short-rates and at least half that for 5 year fixed mortgages, and the introduction of the HST in Ontario and BC this summer. It seems to us that if one gets pre-approval on or before April 18th (one day before the new rules) then the new rules don’t truly apply until the rate commitment has expired up to three months later. That would mean that the Spring housing market has been spared, and the timing for the rules to begin to have a material impact will be pushed off into 2010H2.
Eric Lascelles, chief economics and rates strategist, TD Securities
With great relevance to the Canadian dollar, Canada's already lustrous reputation is about to be further polished by this rule change. The market's perception is likely to be that Canada "gets it", and even with the prospect of a slightly slower economic trajectory than before, it should be viewed in a favourable light for both the currency and bonds. The monetary policy implications of this rule change are that the Bank of Canada does not need to raise rates to address inappropriate housing market strength. The regulatory arm of the government has handled that. The implications of this are that Canada's housing market should first turbo-charge over the next few months before the April 19th implementation date, then cool sharply, and then resume a more modest rate of ascent. In theory, home prices should take a mild hit immediately, as the number of Canadians capable of financing a home will dip slightly. The market's expectation for rate hikes should be scaled back modestly as housing slows and the need to address it via monetary policy fades.
Eric Lam
