Do We Need More Changes to the Mortgage Rules?

The Financial Post last month reported that our representatives in Ottawa were considering increasing the amount of down payment required to obtain a mortgage, citing sources that claimed further measures to cool the house market, including restrictions for high-priced housing, were also being studied. The claim was denied by a rep from the Department of Finance.

“The challenge with further restrictions is they impact the first-time homebuyer, which really isn’t the issue here,” said Phil Soper, chief executive of Royal LePage Real Estate Services Inc. in the article. “They’re not the ones buying detached homes worth more than $1 million.”

Saying that most people buy homes based not on selling price but on carrying costs, Soper noted that lower carrying costs generally mean people buy more, which could lead to an overheated market and likely a correction.

As high-ratio mortgages (anything above 80%) are covered by Canada Mortgage and Housing Corp. (CMHC), default insurance and the corporation doesn’t cover mortgages on homes worth more than $1 million, such a move would have its biggest impact on people struggling to even afford homes in the big cities, especially Toronto and Vancouver where prices are the most out of whack. While home prices in June averaged 9.6% more than a year ago, taking Vancouver and Toronto out of the equation lowered the gains to just 3.1%.

Government is also rumoured to be contemplating lowering amortization periods once more, another factor that impacts monthly carrying costs.

As tempting as it may be, don't buy a new home until you're ready!

I’m something of a political hybrid, believing in the absence of government in most policy issues that concern free enterprise, but also a proponent of subsidized housing. Usually I find my position in that gray area on a per-issue basis, many times somewhere in the middle. But on this one, I can’t seem to find the middle.

On the one hand, what should the government’s role be in influencing home prices? It’s in our best interest to encourage homeownership through lower-cost debt — a rising tide floats all boats — but does that mean our already over-regulated country needs more regulations? We all benefit from a solid economy, but on the other hand, it concerns me that, with inflated home prices, there isn’t any substance there. It’s just paper losses or gains until a real person buys or sells a real house. But “real people” can barely afford to buy homes these days. It bothers me that so many of the people whose labours drive the economies of our two largest cities often can’t afford to live here.

On yet another hand, if people choose to buy homes they can barely afford based on current carrying costs, surely they deserve whatever consequences result from their decisions. And yet, I hate to see families devastated by a financial loss. And yet, most of us live far better than we have any right to anyway, considering the state of poverty in which much of the world’s population suffers — as you can tell, I long ago ran out of “other hands.” I find this issue so multi-layered and complex, it’s hard to find solid footing.

But my overwhelming feeling is that tampering with mortgage regulations in an effort to control housing costs is the real estate equivalent of your mom paying your phone bill right before they cut off your service — how will you ever learn? If we over-bid, spending a million dollars for a brick bungalow in Scarborough because we’re panicking about a) the shortage of inventory or b) the very idea that we might have to come up with more than 5% at some point in the near future, then the time is probably not right to buy. Not to sound like a curmudgeon.

Real estate prices need to be self-governing, even if we have to pay a painful economic lesson. Don’t get me wrong — I’m not advocating for a market crash by any means. I’m advocating for cooler heads and smart choices, so that we as a community can take credit for doing the right thing while we manage the market properly all by ourselves.