February 16, 2009
Federal Finance Minister Jim Flaherty and the Bank of Canada have expressed concern that Canadians may be assuming too much debt in home purchases, debt that could rebound on them when interest rates rise.
Some solutions being floated in advance of Flaherty’s upcoming March 4 budget — doubling the minimum down payment to 10 per cent, or reducing the maximum amortization period from 35 to 30 years — could do more harm than good according to economists.
Most see home prices in Canada as being 10 to 15 per cent too high, largely because construction of new homes slowed during the recession, decreasing available supply, and because of record-low interest rates which are luring many new entrants into the market.
The Canadian Real Estate Association said this week it expects home prices to gain another five per cent to a record average of $337,500 this year. Sales will also hit record levels this year before tailing off next year.