Jim Flaherty has indicated that his measures to slow the Canadian real estate market back in July 2008 have not worked and he may need to take additional measures to prevent another housing crisis. Back in July 08, Flaherty decided to raise the minimum down payment for buyers from 0% down to 5%. He also lowered the amortization of mortgages from 40 years to 35 years. This seems to have not affected the market in the least and certainly hasn’t kept buyers from entering the market. Flaherty is currently considering steps to make it more difficult for buyers. These steps will include raising the minimum down payment to 10% from 5% and reducing the maximum amortization to 30 years from 35.
The hope is to slow the market enough to avoid a housing bubble and the eventual bursting of that bubble. Flaherty is reluctant to increase interest rates significantly as the country is still in recovery, but it is the low interest rates that have people running out to buy new homes. One of the measures Flaherty will consider is an income test for home buyers. This test will look at their income more closely to verify if their mortgage will be affordable once the rates are higher at the time they will need to renew the mortgage.
These steps will certainly help balance the market and keep home buying only for those that can afford it. Many will argue that every citizen should be able to afford housing, but with the average personal debt continuing to rise, many are getting themselves over their head in debt. To manage this debt crisis before it spirals out of control, these measures must be put in place.
For more information on this current situation or any other questions you have concerning this real estate market, please email me at sean.kavanagh@century21.ca or call 905-220-9198.
I look forward to hearing from you.
Sean Kavanagh