No Housing Bubble?

Flaherty dismisses fears over housing
slowdown
Decreasing demand, construction a ‘healthy’ development, finance minister says
The Canadian Press Posted: May 14, 2013
Finance Minister Jim Flaherty is dismissing fears about Canada’s housing market, saying the
current slowdown is welcome news and that there is no need for further government
intervention.
While some observers are expressing fears that a steep correction is underway that will bring
down housing values and possibly affect bank credit ratings, Flaherty said Tuesday that he
believes government mortgage tightening last July actually helped avert what could have turned
into a housing bubble.
“I’m comfortable about where we are,” he said in a telephone interview from France, where he
announced new government financing for the construction of a visitor’s centre at the Vimy Ridge
war memorial.
“I’m pleased in particular that the condo market in big cities has fallen back. I’m also pleased
with some other moderation in new house construction and in demand for mortgages. I think
these are healthy developments because I think we were beginning to see some indications of the
beginning of a bubble.”
He said the recent slowdown is at least in part a consequence of his decision to tighten mortgage
rules last July.
Home price increases falling
A new Teranet house price report released Tuesday showed home price increases slipped to two
per cent in April from 2.6 per cent in March. Analysts noted that was the weakest performance
since the recession for April, traditionally a good month for sales and prices.
While home sales have fallen nationally, and starts are now in the 180,000 a year range, well
down from over 200,000 last year, home prices have stubbornly resisted that trend in most
markets.
However, analysts note that prices are often the last indicator to kick in when a residential
market falls, and some have speculated that prices could plunge by as much as 25 per cent, even
further in the overheated Vancouver market.
The Office of Superintendent of Financial Institutions has told banks it is looking at their
holdings of non-insured mortgages — those with at least 20 per cent equity — to determine the
systemic risk should values plunge.
But Flaherty said he has no plans to further tighten government-backed mortgages for
homebuyers with as little as a five per cent down payment. After tightening rules four times in
the past four years, Flaherty said he has done enough.
“I’m not going to intervene in the mortgage market, I don’t need to,” he said.
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