Flat market doesn't need new mortgage rules, expert says



Home prices in Metro Vancouver are flat and buyers don't need the kind of financial medicine that the federal government doled out Thursday, says an economist.

Cameron Muir, chief economist at the B.C. Real Estate Association, said new federally sponsored rules to reduce homebuyers' debt will only hurt the local market.

"There is no need to cool down a housing market that is already cool," he said. "Tightening mortgage credits today provides some risk to the Canadian economy."

In May, housing sales in Greater Vancouver hit a 10-year low.

The federal measures, which will reduce the amount Canadians can borrow, were announced by Finance Minister Jim Flaherty in Ottawa.

"We want to reinforce the importance of borrowing responsibly," said Flaherty in a statement. "We expect it to result in higher savings for Canadians over the long term."

The new rules, which will take effect July 9, include a provision to reduce the pay-back period for a mortgage, called the amortization period, from 30 years to 25. The rule applies to loans where down payments were less than 20 per cent.

Muir said another $150 a month will be added on a $300,000 mortgage.

"It impacts affordability for consumers," he said. "The maximum amount borrowed would be less."

Flaherty said home purchasers will save thousands over the lifetime of the mort-gage because interest payments will be reduced. "The measures will help ensure households do not become overextended," he said.

The finance minister's announcement was endorsed by Kwantlen University professor of finance Robert Ironside who doesn't like the idea of easy credit.

"Debt is like a cancer," said Ironside. "At some point it's got to be excised. People think debt doesn't matter. It does. Eventually you reach the point where you can't increase your debt."


Ironside, who says young people face a "tsunami of debt-related problems," noted that Stats Canada reported earlier this month that house-hold debt in relation to disposable income had reached a record 152 per cent.t.

He liked a new rule that will eliminate government-backed insured mortgages for homes priced over $1 million - a measure that is bound to have a big effect in Vancouver's pricey market.

"That is extremely good," he said. "Our banks cause the real-estate bubble because they make it easier and easier to get into the housing market. Banks like people borrowing a lot of money."

Another provision will reduce the maximum amount Canadians can borrow during refinancing from 85 per cent to 80. "Borrowing up to a maximum of 80 per cent is great," said Ironside.


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