1. Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.
2. Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. This will help ensure home ownership is a more effective way to save.
3. Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.

Flaherty referenced the recent financial crisis as motivation for taking these proactive steps.

CBC News reports on the changes in “New mortgage rules take effect” and describes the current strength in Canada’s housing market.

The post Changes begin to Canada’s mortgage insurance guarantee framework appeared first on Inflation Watch.

Here are some highlights from the article that describe the frenetic pace of the current Canadian housing market:

• The average home price rose 23% from the trough in January, 2009, hitting a record according to one broad measure.
• Home-sales volumes are up 70% since January, 2009.
• Housing starts in December reached levels last seen October 2008 (no indication whether these stats were seasonally adjusted).
• “Household debt—largely mortgages—was 1.42 times disposable income during the second quarter of 2009, a record high.”

The response of the Bank of Canada speaks to the trap facing policymakers as they contemplate transitioning monetary away from extremely accomodative levels. The WSJ reports:

“…Canada’s central bankers appear reluctant to take any steps that would hurt the economy. In a Jan. 11 speech, a representative of the Bank of Canada said: ‘If the Bank were to raise interest rates to cool the housing market now…we would, in essence, be dousing the entire Canadian economy with cold water, just as it emerges from recession.'”

The Canadians avoided the worst of the recent global meltdown. Let’s hope they did not avoid the fire only to land in the frying pan.

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