Starting on July 9 Flaherty and the government tightened mortgage insurance rules which included lowering the amortization period of mortgages from 30 years down to 25 years. As a result for the month of August Canadian national home sales dropped 5.8 percent from where they were in July, the largest single month drop in nearly two years; also while the average home price rose 4 percent, it was the slowest rate of growth in over a year suggesting prices may finally start coming down in time.
CREA’s chief economist Gregory Klump gave a press release suggesting the government’s moves are helping to bring balance back to the housing market. “The broadly based decline in August sales activity suggests that some buyers may no longer qualify for a mortgage now that amortization periods for high ratio mortgages have been shortened.”
With the Bank of Canada forced to leave the central lending rate at 1 percent going on two years now, Canadians have felt safe in taking on more than affordable mortgages to buy homes otherwise unaffordable. As a result the average Canadian household debt level has exploded to 154 percent of disposable income, causing more money to be tied up in bills and payments with less to spend on actual consumption. The Bank of Canada has tied economic growth heavily with consumer spending and if more and more Canadians are tied down in debt, less is spent on goods and services resulting in the economy continuing to struggle; it’s a vicious loop.
The average home price nationwide for August is reportedly around $350,000 in most urban centres with the price reductions in Vancouver keeping that number from being higher. House listings also showed signs of slowing down led by the GTA with a 7.7 percent decrease in homes listed for sale. The CREA is expecting Ontario and British Columbia to see higher slowdowns into 2013 while Alberta picks up the slack and continues to keep the market stable.
As the year comes to an end the CREA expects 2013 will see the overall average house price slightly decline as less Canadians will be eligible for mortgages; as a result, they also expect the number of homes sold will continue to drop which should have a cooling off effect on record household debt too. If these trends continue to bring the housing market back in line and put some steam back into the economy, even those of us who hate the government with a blind passion can at least thank them for giving Canada some stability in an unstable world.