Ottawa now wants to cool down the hot housing market which lead the way out of our current recession.
Ottawa makes the claim that prices have increased buy 20% in 2009 and this is too much.
Here is reality. Between April 2009 and April/May 2009 housing prices dropped by 15%.
In 2009 they picked the 15% back up & went up another 5%.
5% is a pretty normal amount of increase in a year for house price to rise.
So the question is was there truly a 20% gain or is this just Ottawa trying to control things again.
I am sure that with the gov’t announcment of course this will create another rush in the market as first time buyers scramble to get in. So who are they trying to kid. The same thing happened when they announced the Toronto land transfer tax everyone rushed into the market to make a purchase quickly and avoid it.
So Flaherty wants to increase the amount of downpayment required to purchase a home, thereby cutting a large percentage of first time home buyers out of the market. What most people don’t realize is that the first time home buyer market is about 65-70% of the total market. If these folks get cut out of the market the move up market cannot move either and the whole housing market goes into stagnation. First time home buyers drive our market in Toronto and the GTA.
However, the government does have a legitimate concern. Over the past 35 years the average interest rate for a mortgage on a home has been in the 10-11% range. What should happen if rates were to double from their current status. Mortgage payments upon renewal would also double. Could these first time home buyers afford that.
The government does not want to see us in a situation like the one south of the border with a large number of folks losing their homes because they can’t make the payments. Interest rates will rise and probably in the coming year. So it is a double edged sword. The gov’t will have to very carefully dance around this one or they could generate disaster in the market. The housing market makes up a large percentage of our economic engine.
Some suggestions are to raise the downpayment required, knocking many folks out of the market.
Shortening the amortization period from a maximum of 35 years to 25 years, this could be a very good solution as it forces people to build equity in their homes faster.
One thing for sure is that when interest rates start to rise the housing market will slow down radically.
We will have to wait and see what happens.