Minister Flaherty's "Cure for the Housing Market"
By now I suspect most of you would have read the headline article in todays (Dec 22/09) Globe & Mail ROB entitled "Cure for the hot housing market carries risk". From my perspective, there are two important observations made in the article.
The first is the reference to the Nov/09 CAAMP report that found 18% of mortgages were amortized over more than 25 years, representing a 100% increase over the last two years. That is a depressing thought when you consider some home owners that "saddled-up" with too much mortgage debt will not only be cash strapped month-to-month but will also be carrying mortgages throughout and even past their entire working careers. As I have mentioned previously in this space, I caution my Buyer clients against over leveraging when home buying and always to budget for increased interest rates in the future (i.e. at the time of mortgage term maturity and roll over).
My second observation is to agree entirely with B.Tal of CIBC World Markets in his cautioning of the government not to overshoot their goal should they attempt to impose constraints on the market. With pent-up demand anticipated to be satisfied with on-going new supply coming onto the market (and the natural trend towards the mean of market equilibrium), excessive intervention may cause one of the key engines of our economic recovery to stagnate.
It's worth repeating here that as reported in a recent KPMG Real Estate Newletter "according to records obtained by the The Globe and Mail under the Access to Information Act, a lobby group representing alternate mortgage lenders has advised the Canadian federal government that they will be forced to foreclose on up to 30,000 homeowners in Canada over the next three years. The alternate mortgage lenders are requesting that the federal government back a special billion-dollar fund that would renew the healthy mortgages of borrowers who do not qualify for loans from traditional lenders." These homeowners, many of whom will not have missed a payment or even been late over the entire term of their existing mortgage will be caught between a "rock and a hard place" at renewal. I would think a government legislated thightening up of the market place would have to come with some form of policy assistance to those who merit it.
Michael