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Notable News of the Week: September 14, 2012

Here are the stories that surfaced this past week regarding events related to the mortgage and housing industry.

TD Bank says higher interest rates are needed to cool housing marketFinancial Post

One of Canada’s largest banks, TD Bank says the new mortgage rules should help cool the real estate market – but only in the short term. They believe that higher mortgage interest rates are needed to bring the market back to normal levels.

“Interest rates simply cannot stay at current levels indefinitely,” Craig Alexander, TD Chief Economist

TD’s chief economist says the new tighter mortgage rules will cut home sale activity by 5 per cent and home prices by 3 per cent on average, during the rest of this year and in early 2013. Over the next three years, he projects modest interest rate increases combined with the tighter rules will result in a 10 per cent market correction on prices.

Is Canada’s subprime mortgage market bigger than we think?Investing Daily

A report issued by Euro Pacific Capital strengthened international worries on the state of Canadian consumer finances. The report was helmed by Peter Schiff, who famously predicted the US was heading towards a housing crash in 2007. The report stated that subprime mortgages in Canada have swelled to an estimated $500 billion. However, a conflicting report from Canadian investment firm M Partners places the amount of subprime, high-risk mortgages closer to $85 billion. Euro Pacific’s report also noted that HELOC mortgages have increased by 170 per cent since 2001. The Canadian mortgage market is currently valued at $1.1 trillion.

Canadians have a history of making their mortgage paymentsGlobe and Mail

A survey conducted by the Canadian Payroll Association indicates that almost half of people would be in financial trouble if their pay was late by a week, which suggests a high level of anxiety about many Canadians living paycheque to paycheque. However, we do have a history of re-allocating our money to maintain our debt payments. According to one former banker, in the early 1980s, when 5-year mortgage rates got close to 20 per cent, there was a small increase in delinquencies, but for the most part, people generally paid their mortgages. In a rising rate environment, which we could be headed for, people can get by, by stopping their contributions to their RRSPs and education savings accounts, selling their car, and cancelling their vacation plans.