Come October, the Toronto Real Estate Board will have a new bogeyman to blame for sliding sales: the federal government. The government is reining in mortgages, at least the insured ones it guarantees, scrapping the 40-year amortization period in favour of a maximum of 35 years, requiring a minimum credit score and downpayment and imposing a debt-to-income ratio of 45% to borrowers.
It’s estimated that 40-year mortgages now account for 45% of new mortgage originations. The 40-year product, introduced at the end of 2006, certainly played some part in keeping housing prices on their upward march until the last few months — so its demise should precipitate their slide.
The Finance department release states that “Today’s announcement marks a responsible and measured approach by the government to ensure Canada’s housing market remains strong, and to reduce the risk of a U.S.-style housing bubble developing in Canada.” As with most announcements from Jim Flaherty’s Finance, the timing of the announcement is comically off. Sales across the country are down by double digits and inventories are up — whatever bubble there was is deflating all on its own already. Better late than never.