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Jim Flaherty: “I’m Happy” about Effect of Mortgage Rules

When Finance Minister Jim Flaherty saw Canada’s housing market climb and climb with apparently no ceiling to reach over the past two years, he knew it was time to do something about it. Yes, before July he had already instated new mortgage rules three different times – all with the same hope. That they would make it harder for Canadians to get a mortgage and therefore, make it more difficult for them to heap on even more debt. But these latest changes – the ones that took amortization periods on insured mortgages down to 25 years instead of 30, have definitely had the impact he was hoping for. And he couldn’t be happier.

“The housing market has softened somewhat in part because of steps that I’ve taken and I’m happy about that,” Mr. Flaherty said recently. “Less demand, lower prices, modestly, in the housing market are much better for Canadians than a boom followed by a bust. So I’m all for a soft landing.”

The last Flaherty had said on the subject was back in October when he said that it was “too soon” to say whether or not this latest round of rule changes went into effect. But now, after months of seeing housing starts drop, home sales drop, and new listing drop, there’s no arguing that the rules have had their intended effect.

One of the biggest changes to mortgages was to insured mortgages, which had their amortization periods dropped to 25 years from 30. While the move is to protect buyers as well as the economy, it also can add hundreds of dollars onto the monthly mortgage payment for a home.

But Benjamin Tal, CIBC economist, says that these new rules may not be entirely responsible for the cooling market, as the market was already softening before the new rules went into effect. He says that the new rules have definitely helped quicken the cooling that was so much needed, but that a further drop is coming.

“Still I do agree it was necessary,” Tal said. “It’s good to slow housing when you want to slow it, as opposed to having it slow because interest rates rise or there’s another recession. The correction is not insignificant, but it’s not going to push us into a U.S.-style crash.”

And not only is Flaherty pleased about the fact that the housing market is cooling, but he’s also happy that Canadians have finally listened to the constant warnings from the government and the Bank of Canada.

“When it comes to consumer debt, I am encouraged by the reaction of Canadians. More Canadians are paying down their mortgages, more Canadians are paying their credit cards on time. This is very desirable,” Flaherty said.

And as for the fact that our economy dropped in the third quarter, and that the housing sector shrunk by 3.5 per cent?

“It’s a time in which we are going to be buffeted, there’s going to be some months better than others, but overall we will be OK with modest growth next year. We are on track…for modest growth, moderate growth, in the fiscal year.”

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