Canada doesn’t have a housing bubble — but it would have, had it not been for the government’s mortgage rule changes, Finance Minister Jim Flaherty says.
Flaherty made the comments at a Senate committee hearing Wednesday night.
“I see some people worrying about it, but we don’t have a bubble. If we had failed to take some action, we would have had a bubble,” Flaherty told the committee, according to the Wall Street Journal.
Flaherty sees weakness in Canada’s housing market, particularly in the condo sector, but falling sales numbers and stagnant prices are “a good thing,” he said, Bloomberg reports.
The Bank of Canada will keep rates low for a long time yet, Flaherty said, and that’s becoming a “persisting problem” because it’s causing people to take on mortgages they can’t afford, the finance minister argued.
In a sign of just how worried Flaherty is that low rates are distorting the housing market, the finance minister made a call to Manulife several months ago to convince the financial institution to rescind a rock-bottom 2.89 per cent interest rate on a 5-year fixed-rate mortgage.
The move appeared to work, as Manulife withdrew the offer. However, as many market observers note, many lenders are offering rates below 3 per cent, though they may not advertise them officially.
It’s those low rates that Canada’s bank economists credit with keeping housing (read: mortgage payments) affordable even as Canada has seen a more than decade-long run-up in housing prices.
In a recent report, RBC declared that “owning a home at market price still took a modestly larger-than-usual share of a typical household’s income, but things have not become any worse since early 2010.”
Two recent reports have suggested Canada’s housing market is in for something of a bubble burst.
The Economist last week reiterated its claim that Canada’s housing market is particularly vulnerable to a large correction, estimating it’s overvalued by 73 per cent against rents, and 32 per cent compared to household incomes.
The Canadian Association of Accredited Mortgage Professionals (CAAMP) also predicted Canada’s housing market is in for tough times. In a report issued Wednesday, CAAMP said it expects to see home sales decline 25 to 30 per cent by 2015, resulting in some 150,000 related jobs lost.
Far from saving the housing market, CAAMP has been arguing Flaherty’s changes have brought about what it expects to be a significant correction to Canada’s residential property market.
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