Recent news reports have Canada's Finance Minister Jim Flaherty fretting about the "Housing Bomb", worried that it may turn into a bubble and stressing out over affordibilty when home owners re-new their mortgages. This issue is something of mild concern and it needs to analyzed by more reasonable minds than those possesed by most Canadian journalists (to be fair let's just say journalists).
Mortgage re-newal, for most Canadians this will happen 5 years after they last re-newed or purchased, so the shift in payment will be on the difference between their existing rate not the market's current rate of 3.99% and the rate of the day, as the current rates are the lowest in sometime most re-newers in the next 5 years will have a much narrower difference than what the Chicken Littles are crying about. Secondly, if the new payments are too high based on the Rate-of-the-Day, clients always have the privilege of re-negotiating the amoritization(length of time to repay in full), which any lender will do if its in their interest (PI) to keep the client. Thirdly re-newers can choose whatever Interest Rate best serves their budget; the difference between the 1 year rate and the 10 year rate is ususally about 3-4% which is a healthy spread that offers a lot of choice on payment amount for most Home-owners.
The heat in this housing market is weighted heavily to a few large markets typically Calgary, Vancouver and Toronto, soemtimes you will see Ottawa and Edmonton thrown in for some spice, the rest of the country is, for the most part, not nearly as hot. For Flaherty to implement programs like doubling the required Down Payment from 5% to 10% would throw a brake on the market that would pitch most of us through the windshield. A huge proportion of Home Sales are financed at 5% down and such a solution would be worse than the problem it wants to solve. Housing starts would plummet, construction labourers and craftsmen would be out of work, lumber sales would drop, retail sales sales would drop, etc. etc. So, I don't think we will see any drastic changes in Home-financing policies in Canada. We will hear lots of talk, we will see lots of interviews, columnists, journalists and certainly Garth Turner waxing Doom and Gloom and other end-of-the-world scenarios about this but in my mind at the end of the day the Fla, at most, will roll back allowable amortizations to 30 years, maybe make CMHC fiddle with premiums (market specific anyone??) and will NOT raise Down Payments.
Merry Christmas and a Happy New Year to all of you.