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Notable News of the Week: June 29, 2012

Each week, brings you the Notable News – a compilation of the latest news and most interesting headlines from the mortgage and housing industry. This week, economists and industry insiders provide their two cents on the recent mortgage rule changes. Some believe the new rules are a positive change, others think it will be harder for first-time homebuyers to get into the market, while some believe the changes came too late.

Inflation easing means low interest rates are here to stay – The Globe and Mail

A combination of slowing inflation and Ottawa’s decision to tighten mortgage rules have given the Bank of Canada more freedom to keep interest rates low for a longer period of time, should they choose to. According to Stats Canada, Canada’s annual inflation rate eased in May to 1.2%, down from 2.0% in April – the slowest in two years. The data came a day after Jim Flaherty announced the tightening of the mortgage rules. In response to Friday’s inflation report, deputy chief economist at BMO, Douglas Porter says, “this simply drives home the point that there is now precisely zero urgency to tighten,” and that “any chance of 2012 Canadian rate hikes seemed to fly out of the window.”

Moody’s warns mortgage tightening efforts came too late – The Globe and Mail

Moody’s Investors Service warns the federal government’s efforts to tighten the rules on government-backed mortgages may have come too late. They cite high levels of Canadian household debt leave consumers with little flexibility to adapt to shifting markets, especially those who rely too heavily on low interest rates to support high debt loads. Moody’s analysts, William Burn and Andriy Stepanyants, say, “previous rule changes had some effect in countering the stimulus provided by historically low interest rates but failed to stop Canadian household leverage from increasing.”

Mortgage tightening will help save us from ourselves – Leader Post

Leader Post outlines the positives that come out of the government’s recent decision to tighten the rules of mortgage lending. The new rules will prevent individuals from falling further into financial trouble. With Canadians already at record household debt, the government is trying to prevent further accumulation of debt through home ownership. It is also expected to help to cool the heated housing market in Toronto.

Raising the prime rate, which drives variable rates, is not an option right now for Carney because he fears it would undermine Canada’s fragile economy. The article claims that we’re borrowing so much because it is easy. However, we must remember that consistently low mortgage rates are unsustainable, as the Bank of Canada Governor Mark Carney warns. The new mortgage rules may seem like a huge change, but it will only affect 5% of prospective home buyers.

Canada’s new mortgage rules will trim GDP growth – The Globe and Mail

The new mortgage rules are expected to ripple through the economy and ultimately trim its growth, according to a new forecast by Toronto-Dominion Bank. The study projects the combined impact on home construction and consumer spending will take between 0.1% and 0.2% off economic growth this year and next. According to TD, average house prices are predicted to decline by 10% to 15% over the next two years. They are also forecasting that softer sales and rising inventories of unsold new homes will bring down the pace of homebuilding activity in the second half of 2012. “Overall, housing-related consumer purchases account for just under 10% of overall personal consumption expenditure.”