What goes down must come up

By Sam Reiss

Since some tough changes to mortgage rules this past summer, it has indeed looked like our white-hot market is cooling. I give it about a year of modest price adjustments, and suggest to all those looking to move up the property ladder that this might be a good time to do it. There isn’t much for the rest of us to do but ride it out, and wait for the market to turn once again.

But for stakeholders, such as builders and mortgage lenders, such patience might be more of a virtue than they can abide.

The Financial Post this week reports that the Canadian Association of Accredited Mortgage Professionals (CAAMP) is complaining that Ottawa’s changes are killing consumer confidence and putting the entire economy at stake. CAAMP says that the latest regulation changes have all but squeezed first-time buyers right out of the market, and that the mortgage rules changes should be adjusted once again.

It actually wouldn’t be a move without precedent. Just like the market, the vagaries of government regulation are also cyclical. The very rules that changed in the summer to cool the market were changed at some point in their past to stimulate the market — regulations allowed amortization to stretch to 40 years in the first place, before being whittled back to 30 and then its current 25, just as the minimum down payment required before mandatory mortgage insurance was once 25% and is now 20%.

But a market that gets hot and stays hot indefinitely is simply not a possibility. For the most part, I’m with CIBC chief economist Benjamin Tal, who commented that the regulation changes came at a time when a natural slowing was underway anyway. Shouldn’t we just stop tinkering for a bit and let the market do what it will do organically?

Looking at the key findings of the latest report from CAAMP, there’s little doubt that the changes pushed some potential buyers out of the market: by their findings, about 9% of potential first-time buyers. In order to qualify, CAAMP says these buyers will have to save another $25,000 for their down payments, which will take them 3.5 years.

Clearly, I’m all for home ownership, but that doesn’t seem like such a hardship. Home ownership isn’t a birthright — it’s an achievement, something to be aspired to and worked towards. Not that it should be reserved for the rich — real estate prices in most major cities these days are alarming, and it is a shame that they’ve kicked some people out of the neighbourhood.

However, rather than try to stimulate purchasers by changing the rules yet again, let’s remember that in a completely free-market economy, those people would have a decision to make: move out of the city proper and buy a home elsewhere, or stay and keep saving.

Like one of those nifty parallel reality movies, each choice begets more choices. Those who choose to move must then choose to either commute, or plant new roots. Those who plant new roots then begin to build a new community all together, one that could very well turn out to be the overpriced metropolis of the future. Isn’t that how new cities happen?

We’re not talking about poverty that keeps people from having a roof over their heads — we’re talking about taking an extra few years to afford a healthy down payment on a property that costs well over a quarter million dollars, or moving a bit outside their ideal neighbourhood and helping their new community become what they want it to be. Hardly a hardship.

As an ideology, I’m not much for encouraging government to meddle in the affairs of citizens, particularly in financial matters, but by CAAMP’s report, we are indeed in too much debt, with 150,000 of us using equity in our homes to consolidate our debts at a lower interest rate. I guess that’s smarter than having a higher interest rate, but using home equity to pay off debts is a sign of having taken on too much debt in the first place. Do we really want to reverse regulation changes that are forcing a few people to save money instead of choosing the instant gratification of increased debt?

And is it even the mortgage changes that have squeezed first-time buyers out of the GTA? Or is the prices? Before anybody talks about reversing anything, let’s take a moment, catch our breath, and see where the next few months lead.

It is possible, however remotely, that if we stop tweaking the market and treat Canadian buyers like the grown-ups they are, we might all come to our senses and stabilize the market all by ourselves.

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Congratulations to The Daniels Corporation and its buyers at One Park Place in Regent Park. The project sold 83% of available units in its first two weeks, a testament not just to the quality of work Daniels produces, but to the faith of Torontonians in the sustainability of a brand new Regent Park.

It’s pretty amazing when you think back to what it looked like, and felt like, in Regent Park not that long ago — dirty brick lowrises set back on scorched-looking scrubby lawns, not a coffee shop or convenience store to be found (at least not one without a certain element of “salesman” lurking in the doorway). Remarkable.