Building a better future for the housing market

We all watched with amazement what happened in the U.S. with the sub-prime mortgage crisis. What it came down to, in short, is that lower lending standards led to people securing larger mortgages than they could afford. Who would have thought that to be possible on such a scale?

While Canada was able to avoid the crash landing experienced by its southern neighbor, steps are being taken here to avoid a similar situation. The housing market is cooling off here partially due to an intervention by Ottawa; while the federal government has already rolled out a number of changes (including lowering amortization from 30 years to 25 years for consumers borrowing with mortgage insurance), new standards are being rolled out in 2013 for Canada’s mortgage insurers.

As explained in a press release from December 2012, the guidelines will focus on the steps that mortgage insurers should take to prevent taking too much risk while insuring mortgages. The guidelines are “expected to further regulate the housing market and decrease default risk on the part of borrowers. Moreover, careful consideration by mortgage insurers will reduce the amount of risk they take when insuring mortgages of home buyers,” noted the release.

The changes already made were expected to affect only a small percentage of prospective home buyers, either discouraging some from buying altogether, or encouraging buyers to consider less expensive properties. The rules in place also ensure that buyers’ debt-to-income ratio is not already too high going into a home purchase.

Already, the Canadian market is reacting with lower prices and volumes in different degrees depending on the region. Of course, the broker community is less than pleased. Some analysts are sounding alarm bells about the reduction. I did not check if they are the same analysts that argued about the housing market being too hot and too high a few months earlier.

Even with the reductions experienced so far, the market level is still very healthy and the housing market continues to be an important segment of the Canadian economy.