Are Canada’s Mortgage Rules Hurting Home Sales?

Are Canada's mortgage rules hurting home sales?

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Finance Minister Jim Flaherty recently tightened the mortgage rules making it so that the amortization period is 25 years rather than 30 years, and many experts think that this has had a direct effect on housing sales and that Canada’s mortgage rules are hurting home sale.

Canadian Association of Accredited Mortgage Professionals’ chief economist, Will Dunning, is one of those experts who thinks that the slowdown in home sales across Canada is directly related to the changes made to mortgage laws, and he fears that this might tip the Canadian housing market into conditions that are not desirable.

Another expert, however, David Tulk, Chief Canada macro strategist for TD Securities, believes that if interest rates remain as low as they are and employment rates remain steady, then the Canadian housing market will adjust in a reasonable amount of time.

Nevertheless, it is believed that those hit hardest by the new mortgage rules are first-time homebuyers, who feel incredibly intimidated by a 25-year amortization period.

Dunning feels that the 30-year amortization period should be returned because the housing market was healthy prior to the changes made in policy.

Flaherty, though, believes that the real estate slowdown is a result of “overall fatigue from consumers” and not the tightened mortgage rules that he put into effect. Bejamin Tal, the deputy chief economist at CIBC World Markets, backs up Flaherty, saying, “In a slowing market, it is that much more effective. It was a prudent move.”

If there is anything to be learned here, it’s that interest rates will not remain at an all-time low forever, and so when that day comes, will homeowners be able to keep up with the changing financial demands? Is Flaherty’s move a pre-emptive one or is he damaging the current real estate market by imposing stricter measures on taking out a mortgage?

Feel free to weigh in in the comments section below.

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