Will Dunning, chief economist for CAAMP
believes any mortgage rule tightening could pose a risk to the Canadian economy, noting that the housing sector and investment in energy projects have been the main economic drivers post-recession.
“Now that oil prices have plunged, energy investment is also contracting. This leaves the residential real estate sector as the most positive component of the Canadian economy,” Dunning wrote in a guest column on Canadian Mortgage Trends. “Any policies that are intended to weaken the housing sector would in turn create unnecessary risks for the entire Canadian economy.”
According to a recent Financial Post article, the federal government is looking at ways to cool the housing market and is considering an increase to the minimum down payment requirement.
“They are definitely looking into this but it doesn’t mean that they will do it,” an anonymous source told the Post.
That, of course, would negatively impact not only the economy but mortgage broker business as well, according to Dunning who points to a CAAMP survey that indicated 35,000 (or six per cent of buyers) would not have been able to purchase their home if down payment requirements were raised.
“The absence of 35,000 (or more) buyers from the market would have had profound impacts on sales activity, leading to downward price pressure, which would, in turn, have had significant impacts on the Canadian economy (due to the important role of house prices in determining consumer confidence and as a driver of job creation),” Dunning wrote.
However, it’s the loss of 25,000 first-time homebuyers that could have the greatest impact on the industry, as first-timers make up a great deal of broker business.
According to the Post article, the government is also considering shortening the maximum amortization period and limiting mortgage insurance for high-priced homes; both of which would also negatively impact the economy, according to Dunning.