Stephen Dupuis – Yourhome​.ca

I will admit that I read each and every news report about Bank of Canada Gov­er­nor Mark Carney’s speech to the Van­cou­ver Board of Trade last week to deter­mine whether he was focus­ing solely on the Van­cou­ver real estate mar­ket, where prices are eye-popping and con­tin­u­ing to rise quickly, or Toronto’s as well, where sales vol­umes are quite ele­vated but aver­age prices are much lower and increas­ing at a more sus­tain­able pace.

At the same time, I was pay­ing close atten­tion to fed­eral Finance Min­is­ter Jim Flaherty’s mus­ings because, let’s face it, these two fel­lows have all the power and tools to make or break hous­ing mar­kets across Canada.

Obvi­ously the Bank of Canada con­trols inter­est rates, and any­body who remem­bers the days of mort­gage rates exceed­ing 20% will appre­ci­ate the won­der­ful work the Bank of Canada did to wres­tle infla­tion to the ground and keep it there.

With today’s mort­gage rates, home­buy­ers have it very good indeed, but the prob­lem the Bank of Canada has to deal with is what hap­pens when rates rise: Will peo­ple still be able to afford their mort­gage payments?

Read­ing Carney’s exact words on the Bank of Canada web­site ( www​.bankof​canada​.ca), I found the answer to my ques­tion in the sec­ond line of his speech where he states that in the past three years, the aver­age Van­cou­ver house price is up about 30%, mak­ing that city an “extreme exam­ple” of gen­eral devel­op­ments in Cana­dian housing.

Car­ney notes that “the value of res­i­den­tial real estate hold­ings in Canada has climbed more than 250% in the past 20 years, vastly out­pac­ing increases in con­sumer prices and dis­pos­able income over that period.” That’s a very good thing if you got in the game 20 years ago, or even 10 or five years ago. But if you’re look­ing to get into the mar­ket today, your start­ing point is so much higher.

Here’s where it get’s inter­est­ing. Car­ney reveals that the value of housing-related debt in Canada has nearly tripled over the past decade to $1.3 tril­lion. This debt is also the sin­gle largest expo­sure for Cana­dian finan­cial insti­tu­tions, with real estate loans mak­ing up more than 40% of the assets of Cana­dian banks, up from about 30% a decade ago.

On the up side, Car­ney notes that “this unprece­dented expo­sure exists in the con­text of a Cana­dian mort­gage mar­ket that is sub­ject to more strin­gent checks and bal­ances than in the United States. For instance, almost all Cana­dian mort­gages are full recourse, mort­gage inter­est is not tax deductible, and high-ratio lend­ing stan­dards are gen­er­ally pru­dent. These fac­tors help instill respon­si­bil­ity and dis­ci­pline on both home­own­ers and lenders.”

This is where Fla­herty enters the pic­ture. He deserves credit for his pre-emptive strike against the types of mort­gage financ­ing prac­tices that caused all the prob­lems in the U.S. He acted before the global finan­cial cri­sis and he has tight­ened the mort­gage financ­ing rules twice since then.

I gave Fla­herty full credit for all three moves, but after his most recent restric­tions I made the point that any fur­ther tight­en­ing would go beyond pru­dence and into out­right mar­ket manip­u­la­tion. On that note, I was delighted to read ear­lier this week that he “has no plans to tighten mort­gage rules again.”

Both Car­ney and Fla­herty are walk­ing fine lines every day. They are try­ing to achieve sus­tain­able hous­ing mar­kets with­out killing the goose that is lay­ing the golden eggs, which is never an easy task.

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Con­tact the Jef­frey Team for more infor­ma­tion – 416−388−1960

Lau­rin & Natalie Jef­frey are Toronto Real­tors with Cen­tury 21 Regal Realty.
They did not write these arti­cles, they just repro­duce them here for peo­ple
who are inter­ested in Toronto real estate. They do not work for any builders.
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