Government of Canada Takes Action to
Strengthen Housing Financing

The Honourable Jim Flaherty, Minister of Finance, today announced a number of
measured steps to support the long-term stability of Canada's housing market and
continue to encourage home ownership for Canadians.
"Canada's housing market is healthy, stable and supported by our country's solid
economic fundamentals," said Minister Flaherty. "However, a key lesson of the global
financial crisis is that early policy action can help prevent negative trends from
developing."
The Government will therefore adjust the rules for government-backed insured mortgages
as follows:

o Require that all borrowers meet the standards for a five-year fixed rate
mortgage even if they choose a mortgage with a lower interest rate and
shorter term. This initiative will help Canadians prepare for higher interest
rates in the future.
o Lower the maximum amount Canadians can withdraw in refinancing their
mortgages to 90 per cent from 95 per cent of the value of their homes.
This will help ensure home ownership is a more effective way to save.
o Require a minimum down payment of 20 per cent for government-backed
mortgage insurance on non-owner-occupied properties purchased for
speculation.


"There's no clear evidence of a housing bubble, but we're taking proactive,
prudent and cautious steps today to help prevent one. Our Government is acting to
help prevent Canadian households from getting overextended, and acting to help
prevent some lenders from facilitating it," said Minister Flaherty. "If some lenders
aren't willing to act themselves, we will act. These measures demonstrate the
Government is committed to taking action when necessary to support the longterm
stability of a sector that is so vital to our economy and the financial wellbeing
of Canadian families."
These adjustments to the mortgage insurance guarantee framework are intended to
come into force on April 19, 2010.

Very good move, IMO
Although they keep denying that there is a housing bubble, this move indicates that they are concerned and are watching this market closely.
Also relevent for mention in the same context is the latest report on Canadian family finances by the Vanier Institute of the Family
http://www.vifamily.ca/about/about.html
An excerpt from the annoucement:
The study stresses that personal debt is an increasing problem at the kitchen table, with a 50% increase in mortgages running 90 days or more in arrears in 2009 compared to a year before. The number of credit card holders who were behind at least three months in their payments was up 40% during the same period.

Roger Sauvé of People Patterns Consulting, who authored the report for the Vanier Institute, also flags growing concern over a “housing bubble.” He raises the point that over the past 20 years, house prices have averaged 3.7 times household earnings. Now it is 5 times earnings, with real estate now providing 48% of the net worth of Canadian households, the highest it has been in 20 years.

Sauvé warns that conditions are in place for a correction in house prices. When and by how much is the difficult question. This could be hard on many families, especially recent first-time buyers, who took advantage of record low interest rates to buy a house, and who may not fully realize what an increase in mortgage rates by several per cent will mean for their monthly payments.

More details:
http://www.680news.com/news/local/article/27321--average-canadian-family-debt-reaches-96-000-in-2009-study-finds
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"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."

-- Rhett Butler in "Gone with the Wind"