Minor amendments to mortgage-lending rules announced Tuesday by federal Finance Minister Jim Flaherty are a judicious way of dealing with potential trouble spots in the real-estate market without derailing it, economic and industry commentators said.
"It's not a major change, it won't change the nature of the industry, but it will be big enough to have an impact on the risk pockets and that's exactly what you wanted," said Benjamin Tal, senior economist at CIBC World Markets.
"He's reminding consumers they must live within their means, but also stating clearly there's no housing bubble here and the market is healthy," added Michel Beauséjour, chief executive of the Greater Montreal Real Estate Board.
Amid a growing clamour for some sort of government action to prevent a bubble and dissuade Canadians from taking on too much debt, Flaherty unveiled three changes effective April 19 intended to help prepare borrowers for interest-rate increases widely anticipated for later this year.
Those proposing a down payment below 20% now will need to meet the higher lending criteria for a five-year, fixed-rate mortgage even if that's not their mortgage choice or term.
Homeowners who refinance will be able to withdraw a maximum of 90% of the property's value, down from 95%.
And people looking to buy properties of one to four units they won't be residing in will need a minimum down payment of 20% to get government-backed mortgage insurance.
"While some will be unhappy with the new rules, the policies should reduce the risk of a boom/bust cycle in real estate that is in no one's interests," TD Bank Financial Group said in a report on the measures Tuesday.
In his statement, Flaherty said that, while there is "no clear evidence of a housing bubble," we're taking "proactive, prudent and cautious steps to help prevent one."
He called the Canadian housing market "healthy, stable and supported by our country's solid economic fundamentals." Low mortgage rates have fuelled a spurt in home-buying and rising prices across the nation in the past year and especially the last few months.
Greater Montreal Real Estate Board statistics show the median house price in the metropolitan area rose 4% in 2009, to $235,000, while sales volume increased 8% over 2008. But the market got hotter as the year went on, and a new December record was set with 2,819 sales, up 15% from the previous peak in 2006.
Some analysts maintain the minimum down payment should be raised to 10% from the current 5% and amortization periods limited to 30 years, down from the current maximum 35, so people don't overextend themselves in their haste to acquire property.
But Tal said requiring a higher down payment for residential properties would have been "too aggressive," directly impacting about 20-25% of the market.
"It's a fine line he (Flaherty) is walking," Tal said. "You have to act in a responsible way in a hot real-estate market, but you don't want to overdo it and derail it. What he's done is very surgical, directed to where it hurts rather than an umbrella response.
"Speculators aren't a big part of the market, and neither are those who refinance just to take advantage of the system." Beauséjour said a 1% increase in mortgage rates on an average house in the Montreal area translates into about $60 extra a month.
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