“Staff and the authorities concurred that the pickup in home sales and housing starts since the summer of 2013 is likely to be a transitory phenomenon, the result of demand brought forward at the expense of future months as more borrowers have finalized their mortgages on fears that rates would continue to increase further,” the IMF’s February 2014 report on the state of Canada’s economy states. “Nonetheless, there was broad consensus that should house price and mortgage credit growth re-accelerate on a more widespread and sustained basis, additional measures may be needed.
“Possible options could include higher down-payment requirements for first-time buyers and lower caps on debt-service-to-income ratios.”
Though the organization believes the Canadian housing market should be closely watched, it did commend the government for curtailing a boom in purchasing by implementing the many mortgage rule amendments.
“While the moderation of housing activity since its post-crisis peak suggests no need for additional macro-prudential measures at the current juncture, it is important to remain vigilant,” the report states. “The macro-prudential measures introduced over the past few years have been effective in moderating the pace of household debt accumulation and cooling off the housing market.”
The IMF also noted mortgage insurance as an effective way for the government to control the housing market.
"The current system of pervasive government-backed mortgage insurance has its advantages, particularly as it gives the government a macro-prudential tool that can be used to stabilize the housing sector and the financial system more broadly, as shown during the recent crisis; and because it provides cheap funding to small mortgage lenders, potentially boosting competition in the mortgage market."
The International Monetary Fund believes Canada’s summer housing boom was a fleeting phenomenon that will likely give way to a more stable market; though it also argues additional measures may be needed, which could include higher down-payment requirements.