Observers remain divided on the effects of the recently announced new rules governing mortgage insurance
While economists are in agreement that federal-level steps such as Finance Minister Bill Morneau’s announcement of new mortgage measures last week are needed to address the affordability situation in the country’s hottest markets, the jury is still out on whether the current approach is too stringent or too timid.
“[Last week’s announcement] is the sixth time in eight years that the government has implemented stricter mortgage regulation, with activity declining 6 per cent on average in the four quarters subsequent to their implementation,” Toronto-Dominion Bank economist Diana Petramala told The Globe and Mail.
“The rules ... could take a bigger bite out of activity next year given their breadth and the fact that they are being introduced at a time when many markets have become increasingly sensitive to any shocks.”
Capital Economics analyst (North America) Paul Ashworth warned that the effects of the new rules, which would mandate borrowers to qualify for the posted 5-year bank rate in mortgage insurance, would be far-reaching.
“The much more likely scenario is that the latest tightening of mortgage rules, announced last week, will trigger an even deeper slump in home sales, which will eventually lead to a sharp decline in prices,” Ashworth said.
“[It] could be very bad for the housing market. It is possible that lenders will simply decide to forego mortgage securitization and use their own balance sheets to continue offering ridiculously low interest rates and long amortization periods on what would then be uninsured mortgages,” he added.
Meanwhile, Emanuella Enenajor of Bank of America Merrill Lynch argued that the new measures miss the point as “aggressive lending” is not the problem right now, with earlier regulatory changes having taken care of less-than-optimal borrowers already.
“It’s still too early to tell how impactful these rules will be on housing activity, but for now, we see only a temporary, modest slowing of the housing sector for a few reasons,” Enenajor stated.
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“[Last week’s announcement] is the sixth time in eight years that the government has implemented stricter mortgage regulation, with activity declining 6 per cent on average in the four quarters subsequent to their implementation,” Toronto-Dominion Bank economist Diana Petramala told The Globe and Mail.
“The rules ... could take a bigger bite out of activity next year given their breadth and the fact that they are being introduced at a time when many markets have become increasingly sensitive to any shocks.”
Capital Economics analyst (North America) Paul Ashworth warned that the effects of the new rules, which would mandate borrowers to qualify for the posted 5-year bank rate in mortgage insurance, would be far-reaching.
“The much more likely scenario is that the latest tightening of mortgage rules, announced last week, will trigger an even deeper slump in home sales, which will eventually lead to a sharp decline in prices,” Ashworth said.
“[It] could be very bad for the housing market. It is possible that lenders will simply decide to forego mortgage securitization and use their own balance sheets to continue offering ridiculously low interest rates and long amortization periods on what would then be uninsured mortgages,” he added.
Meanwhile, Emanuella Enenajor of Bank of America Merrill Lynch argued that the new measures miss the point as “aggressive lending” is not the problem right now, with earlier regulatory changes having taken care of less-than-optimal borrowers already.
“It’s still too early to tell how impactful these rules will be on housing activity, but for now, we see only a temporary, modest slowing of the housing sector for a few reasons,” Enenajor stated.
Related Stories:
New housing measures announced
New rules will cool down mortgage market, not home prices
