Ottawa needs to “keep a cool head in these hot housing markets” and not tighten mortgage rules in an attempt to cool the market, according to Will Dunning, the chief economist of Mortgage Professionals Canada.
Dunning argues that any federal measures to cool off the Canadian housing market would have unintended consequences, including making it harder for people to get into home ownership in already-expensive areas, and softening markets across the country, including local markets that do not need cooling off.
In a blog on the association’s news site CanadianMortgageTrends.com, Dunning writes, “Changing mortgage lending criteria in response to pressures that are originating outside of the country would unnecessarily punish Canadians who have reasonable expectations of homeownership.
“As well, that would unnecessarily impair housing markets in Canada, which would have economic consequences… A set of changes to mortgage insurance criteria that was imposed in July 2012 significantly impaired housing activity and continues to have costs.”
Dunning argues against those who suggest that there are high-risk levels of mortgage borrowing among Canadian consumers. He writes, “Regarding current strong demand from Canadian buyers, we have a long-established and reasonable set of criteria for mortgage lending in Canada. We know that, among Canadians who are currently borrowing via mortgages, an enormous majority are able to meet their payment obligations. The Canadian Bankers Association reports an arrears rate of just 0.28 per cent. Moreover… Canadians are highly motivated to repay their mortgages and the majority of mortgages are fully repaid in considerably less time than the original contracted amortization periods.”
In an interview on BNN, Dunning said, “There’s not a compelling argument, based on the evidence we have so far, that there’s a need [to tighten mortgage requirements]. People who are buying houses are well-qualified to buy those houses, and to meet their mortgage obligations. Unless we can see a little more evidence that there is excessive risk-taking going on in the market, why interfere with people who have the ability to buy a home and maintain a debt?”
When asked how people can afford a debt when a mortgage for an average Vancouver home is as much as 80 per cent of the average income, Dunning replied, “Yes, based on the average income, but you can’t actually get a mortgage if it’s going to cost you 80 per cent of your income. You have to qualify based on the rules, and there’s a maximum percentage of your income that you can afford to pay.”
On the risk of high-ratio borrowers being caught out by rising interest rates, the economist said, “There are low interest rates for a very good reason, as we’ve seen a long period of a sluggish economy. There might be a little bit of room for interest rates to rise, but there’s not a lot of room. And people who are borrowing today can afford that small increase in rates.”
