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13 Oct

New Mortgage Rules Should Have Been Introduced Gradually – Economist


Posted by: John Dunford

The revisions to mortgage rules announced last week would have better served the Canadian housing sector by being implemented in small stages, not as a sudden regulatory upheaval.

B.C. Real Estate Association chief economist Cameron Muir noted that the new measures introduced by Finance Minister Bill Morneau last week would—instead of cooling the markets as intended—drive off would-be buyers and slow down construction, CBC News reported.

“Introducing these measures as a single measure, a one-time shock to the economy, doesn’t seem to help affordability,” Muir cautioned.

The economist added that the mortgage market’s dynamism would be hit hard as potential buyers would be forced to stay in their current residences. Supply would thus be scarce by the time millennials have saved up enough to offset the larger down payments.

The prediction echoed that of Addenda Capital Inc. co-chief investment officer Jean-Francois Pepin, who warned last week that contrary to the expectations of lowered home prices as a result of the new rules, mortgage origination itself might be cooled down by the regulatory changes.

“If it slows down the housing market, it’s going to slow down the quantity of mortgages that will end up being on banks’ books, which means there’s a smaller pool that’s available to be securitized,” Pepin said in an interview.

The stricter rules—which would take effect on October 17—would mandate a more stringent “stress test” for first-time buyers who have CMHC-insured mortgages, evaluating their ability to repay under the big banks’ posted five-year rate.