Ottawa tightens mortgage rules to make it tougher to buy a home

Fletch 27 · June 21, 2012

http://www.thestar.com/business/mortgages/article/1214776--flaherty-set-to-announce-tighter-mortgage-rules?bn=1

Or is this simply tightening the rules to make it harder to buy a home you cant afford? In clever steps to avoid a US style housing collapse, the Max amottization period wil be reduced from 30 years to 25, and also loowering the amount you can re-finance from 85% to 80%.

Another example of the Tories backing the People of Canada and giving the cold shoulder to the nasty banks! Again, great steps... I dont think anyone can argue about these points..

PIK · June 21, 2012

Harder to buy a home you can't afford and let you pay it down quicker and save money, but the left will hate it.

Fletch 27 · June 21, 2012

Mulcair and his 11 mortages will... (he may have filed for his 12th by now?) It will be interesting to see what his comments are..

Harder to buy a home you can't afford and let you pay it down quicker and save money, but the left will hate it.

BubberMiley · June 21, 2012

Harder to buy a home you can't afford and let you pay it down quicker and save money, but the left will hate it.

All "the left" or just some of "the left?" I'm generally of "the left" and I think it's a good idea. Does this make me part of "the right?"

Does none of "the right" dislike it? Even those on "the right" that make money off the existing rules?

I only ask because I like to watch people clarify their foolish statements.

dre · June 21, 2012

Its true that maximum ammortization length should be cut, and interest rates need to go way up as well.

But to use this as an opportunity to put on the pom-poms for your political party is rather silly. The Conservatives have presided over the easiest credit conditions and the lowest lending standards in modern Canadian history.

In fact the Canadian government is now the largest sub prime lender in the world

Interest rates have been slashed to modern historical lows resulting in the lowest personal savings rates in modern history...

http://actionplan.gc.ca/grfx/images/images/capc2_13-eng-.gif

I wouldnt attack Mr Harper for any of this because the reality is any party would have done exactly the same thing. But to put on your pom-poms here is pretty inane.

waldo · June 21, 2012

Another example of the Tories backing the People of Canada and giving the cold shoulder to the nasty banks! Again, great steps... I dont think anyone can argue about these points..

so... who were the Harper Conservatives, uhhh... 'backing', as you say, when they bumped amortization periods up from the 25 years that existed, up to 35... and 40 years? In any case, it is heartening to see the lil' leprechaun channeling his inner Paul Martin, hey?

CPCFTW · June 21, 2012

Good idea to ease our way into the housing market correction. I wouldn't mind the rules being relaxed again when prices have corrected or if RE cools off.

msj · June 21, 2012

Another example of the Tories backing the People of Canada and giving the cold shoulder to the nasty banks! Again, great steps... I dont think anyone can argue about these points..

You are conveniently forgetting that the CPC brought us 0% down and 40 year amortizations back in 2006.

They have been back tracking every since for this bone headed move.

Yes it is better to back track slowly (they moved to 5%/35 and then 5%/30 and now 5%/25 over the past 3 or so years).

Of course they never should have allowed anything above 5%/25 years in the first place but even stupid government's can learn a lesson thanks to watching the American's folly.

dre · June 21, 2012

You are conveniently forgetting that the CPC brought us 0% down and 40 year amortizations back in 2006.

Not only that but they then securitized and insured 90% of these loans. They forced the public to buy them.

Again though... hard to blame the conservatives for this because easing credit is pretty much the only tool in the governments shed when theres a recession. Countries all around the world dumped money into the economy in this way, and slashed rates and by extention slashed standards.

Edited June 21, 2012 by dre

PIK · June 21, 2012

All "the left" or just some of "the left?" I'm generally of "the left" and I think it's a good idea. Does this make me part of "the right?"

Does none of "the right" dislike it? Even those on "the right" that make money off the existing rules?

I only ask because I like to watch people clarify their foolish statements.

You sir are a leftie with a brain. And I should have said mulcair, my mistake.

bleeding heart · June 21, 2012

Not only that but they then securitized and insured 90% of these loans. They forced the public to buy them.

Again though... hard to blame the conservatives for this because easing credit is pretty much the only tool in the governments shed when theres a recession. Countries all around the world dumped money into the economy in this way, and slashed rates and by extention slashed standards.

Exactly so. As you say, there's nothing to really blame the conservatives for--not as a Party-comparative exercise, anyway. But neither do they deserve tremendous accolades.

msj · June 21, 2012

Again though... hard to blame the conservatives for this because easing credit is pretty much the only tool in the governments shed when theres a recession. Countries all around the world dumped money into the economy in this way, and slashed rates and by extention slashed standards.

Just because everyone does it doesn't make it right.

The Bank of Canada lowered interest rates and the CPC reduced lending standards.

All this has done is bring demand forward and make house prices absurd while debt levels have swelled every higher.

The government could have, alternatively, spent money on infrastructure which would have had the lasting benefit of having things like roads, bridges, ports, etc... that would actually continue to make us productive for decades.

Instead, we have people swapping houses at higher prices thinking that this has made them rich.

The price we are going to pay for this stupidity is yet to be felt.

dre · June 21, 2012

Just because everyone does it doesn't make it right.

The Bank of Canada lowered interest rates and the CPC reduced lending standards.

All this has done is bring demand forward and make house prices absurd while debt levels have swelled every higher.

The government could have, alternatively, spent money on infrastructure which would have had the lasting benefit of having things like roads, bridges, ports, etc... that would actually continue to make us productive for decades.

Instead, we have people swapping houses at higher prices thinking that this has made them rich.

The price we are going to pay for this stupidity is yet to be felt.

I agree its short sighted policy, but the reason they lend this money into the economy instead of spending it into the economy is to encourage consumer spending and prevent defaults.

Governments dont care about long term consequences, they care about the next election. So even if allowing bubble to deflate and having a recession or period of contraction is good long term policy they will STILL ease credit and try to make sure a recession doesnt happen on their watch.

And make no mistake about it... if they didnt ease credit there would have been a huge glut of forclosures, defaults, and underwater mortgages and a big drop in consumer spending.

Moonlight Graham · June 21, 2012

All "the left" or just some of "the left?" I'm generally of "the left" and I think it's a good idea. Does this make me part of "the right?"

Does none of "the right" dislike it? Even those on "the right" that make money off the existing rules?

I only ask because I like to watch people clarify their foolish statements.

Exactly.

punked · June 21, 2012

I think it is a great idea. I mean I thought I was stupid when they over heated the market by bringing in the 30 year mortgage in the first place. It is good to know that sometimes even if it takes them a million years they can learn from their own mistakes. It is good they have admitted they were wrong when everyone on the left told them they were wrong 5 years ago and have corrected their own error.

GostHacked · June 21, 2012

Good idea to ease our way into the housing market correction. I wouldn't mind the rules being relaxed again when prices have corrected or if RE cools off.

Relax them enough to tighten them up later on because no one learns from the past mistakes?

And to add.. no one should be borrowing more money than they can reasonably pay back.

With a wage of 50Gs there is no way someone should be given a loan for 500,000$ Also the housing market seems to be really inflated. My pal who bought a house two years ago, has already gone up in value by about 30 grand. But is that value or a weak dollar. Who knows.

Edited June 21, 2012 by GostHacked

August1991 · June 21, 2012

Talk about closing the barn door after the horse has left.

There is little danger of a housing bubble now in Canada, just after the collapse of such a bubble in the US. Everybody is focussed on the dangers of rising prices and no one is making typical bubble-type arguments as were common in the US before 2008.

Its true that maximum ammortization length should be cut, and interest rates need to go way up as well.

Why?

We are very slowly leaving a recession. It would be madness to raise interest rates now. I see no problem with long amortization periods. The lender and borrower should negotiate this in their own best interests.

Bernanke has recently signaled that he would consider further quantitative easing. Our own Carney has decided to leave the key lending rate at its low level.

-----

While I disagree with Krugman's partisan politics, I have to agree with his macro-economic policy prescription. Western economies have a bad infection and rather than give them penicillin, too many people (like you dre) are advocating blood-letting or sleeping with a window open. In the 1930s, people argued for "sound money". Nowadays, they argue for "austerity". In either case, such policies will make things worse.

With that said, too many people also believe that giving penicillin to a healthy person will make it even stronger. Quantitative easing like antibiotics is a remedy; it's not a magical elixir.

All this has done is bring demand forward and make house prices absurd while debt levels have swelled every higher.

We are barely leaving a recession; it is normal for debt levels to be high. Edited June 21, 2012 by August1991

August1991 · June 21, 2012

Good idea to ease our way into the housing market correction.

What "housing market correction"?

I know that it's conventional wisdom in English Canada today to believe that there is a housing bubble in Toronto and Vancouver but I disagree with the conventional wisdom. As far as I remember, Vancouver has always been declared a housing bubble. As for Toronto (and talking through my hat), I suspect that many foreign investors view Toronto real estate the way they view US Treasuries: a safe way to save in uncertain times.

Governments dont care about long term consequences, they care about the next election.

I disagree. For example, Stephen Harper was certainly thinking about his long term political reputation in the 2004 election.

In the same sense, corporate managers and investors don't merely look at the next quarter results.

Or to use still another example, people don't pay such a high price for a Mercedes even if they plan to drive it for only one year.

So even if allowing bubble to deflate and having a recession or period of contraction is good long term policy they will STILL ease credit and try to make sure a recession doesnt happen on their watch.

And make no mistake about it... if they didnt ease credit there would have been a huge glut of forclosures, defaults, and underwater mortgages and a big drop in consumer spending.The more standard argument is that Greenspan gave penicillin to the healthy US economy.

dre · June 21, 2012

We are very slowly leaving a recession. It would be madness to raise interest rates now.

That is EXACTLY what they are going to do I assure you. And if they dont well have an even bigger recession later on.

We are barely leaving a recession; it is normal for debt levels to be high.

The problem is that those low rates and those debt levels will create the NEXT recession. And we already HAVE a realestate bubble. We have the 3rd most overvalued realestate market in the world. And every bit of debt driven consumption that happens now is consumption that will not happen later. This activity is going to cause a recession down the road, just like the credit easing that happened after the .COM bubble burst caused the mortgage meltdown.

Edited June 21, 2012 by dre

Topaz · June 21, 2012

http://www.thestar.com/business/mortgages/article/1214776--flaherty-set-to-announce-tighter-mortgage-rules?bn=1

Or is this simply tightening the rules to make it harder to buy a home you cant afford? In clever steps to avoid a US style housing collapse, the Max amottization period wil be reduced from 30 years to 25, and also loowering the amount you can re-finance from 85% to 80%.

Another example of the Tories backing the People of Canada and giving the cold shoulder to the nasty banks! Again, great steps... I dont think anyone can argue about these points..

Of course, he's right in doing the 25 year mortgage...because that is were it was in 2006 when HE decided to up it to 40!

Topaz · June 21, 2012

There's pros and cons to this move, one pro is more people will have to rent than buy, more lower price homes will be selling, which could reach a point were there won't be enough of them in certain areas of the country. Will rents go up as landlords try to cash in, there's also homeowners who just recently bought their homes may see house prices dip, which the Minister said prices are too high and need correction. On the news the other day, I heard that generation X and Y are so far in debt they are in trouble. Why? Some with education debt, some with "I want that" debt and some just trying to have house, car and family.

WWWTT · June 21, 2012

Talk about closing the barn door after the horse has left.

There is little danger of a housing bubble now in Canada, just after the collapse of such a bubble in the US. Everybody is focussed on the dangers of rising prices and no one is making typical bubble-type arguments as were common in the US before 2008.

Why?

We are very slowly leaving a recession. It would be madness to raise interest rates now. I see no problem with long amortization periods. The lender and borrower should negotiate this in their own best interests.

Bernanke has recently signaled that he would consider further quantitative easing. Our own Carney has decided to leave the key lending rate at its low level.

-----

While I disagree with Krugman's partisan politics, I have to agree with his macro-economic policy prescription. Western economies have a bad infection and rather than give them penicillin, too many people (like you dre) are advocating blood-letting or sleeping with a window open. In the 1930s, people argued for "sound money". Nowadays, they argue for "austerity". In either case, such policies will make things worse.

With that said, too many people also believe that giving penicillin to a healthy person will make it even stronger. Quantitative easing like antibiotics is a remedy; it's not a magical elixir.

We are barely leaving a recession; it is normal for debt levels to be high.

Very sound quote here!

This is one of those odd times we are in agreement!

WWWTT

dre · June 21, 2012

The more standard argument is that Greenspan gave penicillin to the healthy US economy.

Greenspans penicillin turned out to be poison. It helped reduce the effects of the recession in 2001, but all that easy credit was used to bid up realestate in the US and create a gigantic bubble there.

This is whats known as the "business cycle" and its the reason why economic booms are followed by recessions. And this is exactly whats going to happen in Canada. Realestate prices have been bid up to unrealistic levels by too much easy credit and interest rates that were too low for too long. What this does is decrease the personal savings of Canadian families as they take advantage of cheap debt and use it to drive their consumption. Feels like economic growth! GDP goes up, jobs satisfying this debt financed consumption are created! And it works in the short term to reduce the impact of the recession.

But thats not real economic growth, and all youre doing is moving consumption to today that would have happened tomorrow. So when tomorrow rolls around, you stop consuming because so much of your income is being eaten up on servicing the debt from yesterdays consumption, and peoples savings are so tapped out they decide its time to rebuild them. That means a deep and long recession.

Edited June 21, 2012 by dre

msj · June 21, 2012

Talk about closing the barn door after the horse has left.

There is little danger of a housing bubble now in Canada, just after the collapse of such a bubble in the US. Everybody is focussed on the dangers of rising prices and no one is making typical bubble-type arguments as were common in the US before 2008.

Huh?

The US bubble burst way back in 2006/2007. It's just that nobody noticed until 2008/2009.

How does one lead to the other anyway?

Other than it would be smarter to buy a house in Nevada at half the cost it is to buy one in various parts of Canada?

As for "no one" calling Canada a "bubble?" Huh?

Lots of people have been calling Canada a bubble - Vancouver selling at 10-12 times median family income for the past couple of years and Toronto at 6+ going towards 8+ and probably will peak around 10+ before it turns. Those are bubbles.

In fact, there have been threads on MLW discussing this with actual links to real substantive statistics showing how Vancouver, Toronto, and other Canadian markets have surpassed the statistics in many former bubble markets in the US when it comes to debt ratios, price to rent ratios, and price to income ratios.

Just because you choose to ignore these threads does not mean that "no one" is not calling a bubble.

Of course, real estate is local - my real estate market has turned negative on a year-over year basis since November, 2011 (i.e. in each month compared to the same month in the prior year has seen the average house price go down - except for February 2012 which was flat).

It's looking like a trend which is not surprising when the average house price is selling at about 7-8 times median income.

We are very slowly leaving a recession. It would be madness to raise interest rates now. I see no problem with long amortization periods. The lender and borrower should negotiate this in their own best interests.

The Bank of Canada sets the prime rate, the bond markets set the mortgage rates so what are you talking about again?

As for the lender/borrower negotiating their own terms - sure, if you want to ensure an American style debt/housing bubble go right ahead.

As for leaving a recession - what does that have to do with ensuring higher real estate values?

It's not like buying and selling houses is adding real economic value. It just makes people feel richer when, in fact, most people aren't and they are, in fact, in more debt.

Bernanke has recently signaled that he would consider further quantitative easing. Our own Carney has decided to leave the key lending rate at its low level.

Where's that face palm emoticon?

There are many ways to do quantitative easing without touching the prime interest rate....

-----

While I disagree with Krugman's partisan politics, I have to agree with his macro-economic policy prescription. Western economies have a bad infection and rather than give them penicillin, too many people (like you dre) are advocating blood-letting or sleeping with a window open. In the 1930s, people argued for "sound money". Nowadays, they argue for "austerity". In either case, such policies will make things worse.

With that said, too many people also believe that giving penicillin to a healthy person will make it even stronger. Quantitative easing like antibiotics is a remedy; it's not a magical elixir.

We are barely leaving a recession; it is normal for debt levels to be high.

It is a problem for private debt levels to be at record levels.

Krugman has even discussed this recently - that so many economists ignore money and debt that they are clueless when it comes to dealing with the US/Euro malaise.

Hence the austerity "solutions" which haven't worked, for example, in Ireland or UK.

Fiscal policy should have been used first and foremost (in the US - Canada could have suffered a recession). Instead, we have dishonest politicians and central bankers tinkering with something they really can't control.

Whatever happened to the point of view that recessions are good because they cleanse the economy?

It's been replaced with "let the people buy a house, or two, and everything will be fine."

So many people are going to wake up one day and find that putting too much of their net worth into real estate has led to a retirement full of canned dog food and working for Wal-Mart.

dre · June 21, 2012

Whatever happened to the point of view that recessions are good because they cleanse the economy?

It's been replaced with "let the people buy a house, or two, and everything will be fine."

The reason we dont have recessions is because voters dont understand economics. They think the economy grows or contracts because of what the government does or what the president or prime minister does. So if theres a recession they turn against the party in power. And political parties want to get re-elected so they EASE!... It makes the problems bigger and pushes them into the future for some other suckers to deal with.

Smart short term... Dumb long term.

In any case this is the prevailing monetary theory in countries that manage their own fiat currencies. Dump money into the economy to get the desired level of employment, and worry about price instability / inflation later (or change the way CPI is calculated to hide the inflation )

Expecting the government NOT to do this is basically like expecting a dog not to bark or lick its own nuts.

Edited June 21, 2012 by dre

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