Harper Government Takes Further Action to Strengthen Canada’s Housing Market
As part of the Government’s continuous efforts to strengthen Canada’s housing finance system, the Honourable Jim Flaherty, Minister of Finance, today announced further adjustments to the rules for government-backed insured mortgages.
“Our Government stands behind the efforts of hard-working Canadian families to save by investing in their homes and their future,” said Minister Flaherty. “The adjustments we are making today will help them realize their goals, build on the previous measures we have introduced to keep the housing market strong, and help to ensure households do not become overextended. As just one example, the reductions to the maximum amortization period since 2008 would save a typical Canadian family with a $350,000 mortgage about $150,000 in borrowing costs over the life of that mortgage.”
The Government is announcing four measures for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent:
· Reduce the maximum amortization period to 25 years from 30 years. This will reduce the total interest payments Canadian families make on their mortgages, helping them build up equity in their homes more quickly and pay off their mortgages sooner. The maximum amortization period was set at 35 years in 2008 and further reduced to 30 years in 2011.
· Lower the maximum amount Canadians can borrow when refinancing to 80 per cent from 85 per cent of the value of their homes. This will promote saving through home ownership and encourage homeowners to prudently manage borrowings against their homes.
· Fix the maximum gross debt service ratio at 39 per cent and the maximum total debt service ratio at 44 per cent. This will better protect Canadian households that may be vulnerable to economic shocks or an increase in interest rates.
· Limit the availability of government-backed insured mortgages to homes with a purchase price of less than $1 million.
“Investing in a home is a great way to save,” said Minister Flaherty. “That is the dream that mortgage insurance was intended to support. The measures we are taking today maintain that intended purpose.”
Minister Flaherty said the new rules will take effect on July 9, 2012.
依据加拿大政府的规定，消费者在购屋时，如果头期款不到房价的20%，便必须向加拿大房贷暨房屋公司（Canadian Mortgage and Housing Corp.）购买由政府担保的房贷保险。在新政策下，如果房贷的最久偿还年限长于25年，便不具备向加拿大房贷暨房屋公司购买房贷保险的资格，换一句话说，就是借不到钱买房子。
Transcript: Harper Government Takes Further Action to Strengthen Canada’s Housing Market
DATE/DATE: June 21, 2012 8:15 a.m.
LOCATION/ENDROIT: National Press Theatre, Ottawa, Ontario
PRINCIPAL(S)/PRINCIPAUX: The Honourable Jim Flaherty, Minister of Finance;
The Honourable Maxime Bernier, Minister of State (Small Business and Tourism).
SUBJECT/SUJET: Minister of Finance Jim Flaherty Holds a Media Availability.
Moderator: Good morning. Bienvenue. I’m Jim Bronskill of the Canadian Press on behalf of the Parliamentary Press Gallery. Today, we have Ministers Flaherty and Bernier. They will each have a statement and they will be happy to take your questions. If you have a question, please signal to me and I will add you to our list.
Minister, please proceed.
Hon. Jim Flaherty: Thank you. And good morning, everyone. Earlier this spring, our government tabled the Economic Action Plan 2012 which sets out a comprehensive agenda that bolsters our fundamental strengths to help create jobs, growth and prosperity for the future.
One of these key strengths is our strong housing sector. The home is the biggest and most important investment for most Canadian families. Our government has long encouraged Canadians to continue to borrow responsibly and use home ownership as a savings vehicle.
Notre gouvernement encourage depuis longtemps les Canadiens et les Canadiennes à continuer d’emprunter de manière responsable et se servir de leur propriété comme mécanisme d’épargne.
And for the most part, Canadians have done so. During the global economic crisis, Canadians continued to pay their mortgages but we must remain vigilant. As witnessed in the United States, the health of a country’s housing market can dictate the health of a broader economy. That’s why our government continually monitors the housing market, ready to take proactive action and responsive action when necessary to ensure its ongoing strength.
Indeed, just recently, to further support the long-term stability of our housing and mortgage markets, we took steps in Economic Action Plan 2012 to enhance the governance and oversight framework for the Canada Mortgage and Housing Corporation, CMHC.
CMHC’s commercial activities, particularly its mortgage insurance and securitization programs play an important role in the housing market and in the financial system. Our proposed changes will ensure strengthened oversight of CMHC and ensure its commercial activities are managed in a manner that promotes the stability of the financial system.
Les changements que nous proposons renforceront la surveillance exercée par le Canada Mortgage and Housing Corporation et feront en sorte que ses activités commerciales soient gérées de manière à promouvoir la stabilité du système financier.
As I mentioned earlier, we are constantly monitoring the housing market, ready to act when necessary. In recent years, our government has taken a series of measured steps to protect the long-term stability of housing and mortgage markets and to help prevent Canadian households from getting over extended.
So, today, building on those previous steps, we are announcing adjustments to the rules for taxpayer-backed mortgage insurance.
First, we will reduce the maximum amortization period to 25 years from 30 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 percent. This will further reduce the total interest payments Canadian families make on their mortgages, helping them build up value in their homes more quickly and pay off their mortgage debt sooner.
For a typical Canadian family with a $350,000 mortgage, measures to reduce the maximum amortization period taken by our government since 2008 would save them about $150,000 in debt costs over the life of a mortgage. So that’s the first thing, the amortization period.
Secondly, we will lower the maximum amount Canadians can borrow in refinancing to 80 percent from 85 percent of the value of their homes. Limiting the amount of refinancing will encourage homeowners to prudently manage borrowing against their properties and keep equity in their homes. That’s the second thing.
Thirdly, we will fix the maximum gross debt service ratio at 39 percent and the maximum total debt service ratio at 44 percent. That sounds technical but what it really means is that these debt service ratios measure the percentage of a household’s income that is required to cover payments associated with servicing debt. This measure will better protect Canadian households that may be vulnerable to economic shocks or an increase in interest rates.
And the fourth and final item is we will limit the allowable price for taxpayer-backed mortgage insurance to homes priced under $1 million. A down payment of at least 20 percent will be required on mortgage loans for homes priced at or above $1 million.
So, as I said before, our government stands behinds the efforts of hardworking Canadian families to save by investing in their homes and their future. That is what mortgage insurance was intended to support, that is Canadian families to save by investing in their homes and their future. The measures we are taking today maintain that intended purpose of supporting the typical Canadian family through taxpayer-backed mortgage insurance.
Our government is committed to the long-term stability of the housing market. That is why we committed in Budget 2011 last year to introduce a legislative framework to strengthen our oversight of mortgage insurance in Canada.
Tomorrow, we will pre-publish the regulations necessary to bring this new framework into force.
Also, today, the Superintendent of Financial Institutions will be releasing its final guideline on residential mortgage underwriting practices and procedures. I welcome the release of OSFI’s guideline which underscores leaders’ – lenders’ responsibilities in ensuring prudent mortgage underwriting and risk management practices and complements the actions that our government is taking today.
So, in closing, I would remind Canadians that our government is committed to a strong and stable housing market. We always monitor developments. We are ready to take action when necessary to protect the investment of Canadian families.
Thank you. And I’m glad that my colleague Maxime Bernier is with me.
Hon. Maxime Bernier: Merci. Thank you, Jim. Bon matin à tous. Vous savez que l’achat d’une maison représente pour les familles canadiennes le plus important investissement de leur vie. Notre gouvernement les encourage, et ça depuis longtemps, à continuer d’emprunter de manière responsable et à se servir de leur propriété pour épargner.
Comme nous l’avons constaté aux États-Unis, la santé du marché du logement d’un pays peut dicter la santé de l’ensemble de son économie. Notre gouvernement surveille constamment le marché du logement. Il faut toujours être vigilant, responsable.
Nous annonçons donc aujourd’hui des ajustements qui s’appliquent à l’assurance-hypothèque garantie par le gouvernement. Je veux attirer votre attention sur deux mesures en particulier. Elles pourraient se résumer par ce dicton populaire, “Qui paie ses dettes s’enrichit, qui paie ses dettes plus rapidement s’enrichit plus rapidement.”
Donc nous annonçons aujourd’hui que la période maximale d’amortissement de nouveaux prêts hypothécaires va passer de 30 à 25 ans. Cela touche les emprunteurs qui versent une mise de fonds initiale de moins de 20 pour cent et dont le prix d’achat de la maison est inférieur à un million de dollars. Ça va réduire le montant total des intérêts que paient les familles canadiennes. Ça va aussi les aider à accroître plus rapidement la valeur de leur maison et à accélérer le remboursement de leur hypothèque.
Nous réduisons aussi le montant maximal que les Canadiens peuvent emprunter lors d’un refinancement. Ce montant va passer de 85 pour cent à 80 pour cent de la valeur de la maison. En limitant le montant du refinancement, nous encourageons les propriétaires à gérer avec prudence les emprunts qu’ils contractent et à conserver la valeur acquittée de leur maison.
Notre gouvernement appuie les familles canadiennes qui tentent d’épargner en investissant dans leur maison et dans leur avenir et surtout nous sommes résolus à soutenir la stabilité à long terme du marché du logement au Canada.
Moderator: Questions. Julian Beltrame.
Question: I’m wondering, Minister, why now? All the trend lines seem to be going down in terms of credit growth and in terms of housing crisis, in terms of house sales, house starts. And some economists are wondering whether or not this hammer may actually kill one of the few engines of robust growth in the country’s economy.
Hon. Jim Flaherty: Well, it’s a good question. We have intervened three times during the last six years in the housing market. Our involvement of course is insured mortgages through CMHC and through a couple of private sector companies that are in the insured mortgage business. Wealthy people can borrow whatever they want from banks and they can work that out with banks and that’s not my concern. My concern is the broader range of Canadian people who might get over extended. So we’ve intervened three times — today now for the fourth time. We watch carefully. We monitor the market carefully. I remain concerned about parts of the Canadian residential real estate market, particularly in Toronto but not only in Toronto. So that is why we were intervening once again.
As I say, Julian, this is a judgment call. I mean this is not written anywhere in a book about when one intervenes and when one does not intervene. But my judgment is that we need to calm particularly the condo market in a few Canadian cities.
Question: Is part of this to do with the fact that you realize interest rates are not going to come up, are not going to rise anytime soon?
Hon. Jim Flaherty: Well, you’ll have to, you know, talk to the Governor about that but the Governor of the Bank is responsible for that matter. The reality is and we just came back from the G-20 meeting of leaders and finance ministers and the reality is that the European situation is very challenging, to put it mildly, and that we’re not likely to see increases in interest rates by the Fed in the United States, for example, for a while. So my job is to look at our own country and look at the residential real estate market and make the best judgment that we can.
Moderator: Madeleine Blais-Morin.
Question: Monsieur le ministre Bernier, qu’est-ce qui vous inquiète le plus? Est-ce que c’est la présence peut-être d’une bulle immobilière ou c’est l’endettement des Canadiens?
L’hon. Maxime Bernier: Bien, vous savez que maintenant l’endettement des Canadiens au total est au-dessus de 150 pour cent. C’est un chiffre qui est assez élevé et ce que nous faisons, nous assurons la stabilité du marché hypothécaire au Canada. Le ministre l’a bien dit tout à l’heure, c’est une mesure qui est responsable et nous voulons faire en sorte que les Canadiens puissent continuer à épargner et avoir de l’équité sur leur résidence. Donc c’est une mesure qui est responsable et qui est adéquate dans le cas du marché actuel.
Je peux vous dire que si on regarde ce qui se passe au Canada versus d’autres pays, nous avons et le ministre des Finances et mon gouvernement a très bien géré la suite de la crise financière et c’est dans cette mouvance-là que nous intervenons une autre fois pour s’assurer de la stabilité du marché hypothécaire à moyen et à long terme.
Question: Est-ce que – est-ce que vous craignez – est-ce que c’est encore possible que des soubresauts dans le marché compromettent la reprise? Si – vous l’avez dit là que les taux d’intérêt vont pas nécessairement remonter bientôt mais n’empêche que si ça se déstabilise le fragile équilibre qu’il y a en ce moment dans l’endettement dans la valeur des maisons, est-ce que ça ça pourrait compromettre la reprise?
L’hon. Maxime Bernier: Mais vous parlez des taux d’intérêt. Le ministre des Finances, Jim, l’a bien dit tout à l’heure les taux d’intérêt sont dictés par la Banque du Canada. La Banque du Canada est responsable de la politique monétaire au Canada. C’est – le jugement en ce qui concerne les taux d’intérêt, je le laisse au gouverneur de la Banque du Canada. Et en regardant l’ensemble du marché immobilier, du marché de l’habitation, il est opportun de faire cette mesure-là actuellement pour s’assurer que c’est une mesure qui est proactive et on peut pas dicter le comportement du marché. On peut pas – on n’a pas de boule de cristal pour savoir quel va être l’état de l’économie canadienne dans plusieurs – plusieurs années ou quelques mois mais en regardant dans le passé les mesures que notre gouvernement nous avons – les mesures que nous avons pris dans le passé en ce qui concerne ce dossier-là ça l’a bien servi l’économie canadienne et je suis conscient que la mesure d’aujourd’hui va bien servir l’économie canadienne aussi et les ménages canadiens et les familles.
Moderator: Paul Vieira.
Question: Mr. Flaherty, I want to go back on this interest rate question. You said – you said that you don’t anticipate the Federal Reserve to raise interest rates for a while. Is this why maybe in consultation with the Bank of Canada Governor that you’ve decided to move because the Bank of Canada’s – is going to be hamstrung in terms of raising rates and that policy lever will not be available to cool potential overheating in real estate markets?
Hon. Jim Flaherty: You know, Paul, I’m not in a position to talk to you about my discussions with the Governor of the Bank of Canada. We have a very good relationship. In fact, we have a legal responsibility to talk to each other. The Governor and I were together at the G-20 meetings earlier this week in Los Cabos in Mexico.
The reality is that there’s grave concern about the economic recovery in Europe and that’s what we spent a couple of days talking about in Mexico. So that’s the reality. But in terms of monetary policy and setting rates, that’s something you’ll have to ask the Governor about.
Question: As a follow-up, have you – do you know how much of a hit Canadian economic growth is going to take from this – from these measures you’re introducing? Has your department – how much is it going to slow down GDP growth? How’s it going to affect revenue intake? Do you have any sort of —
Hon. Jim Flaherty: We do. You know, as we’d expect we don’t do these things blindly and we have lots of people who look at the numbers. In terms of Canadian families, what we anticipate is less than five percent of new home purchasers would be affected by this initiative. Now it will mean that some people will not buy into the market. It will also mean that some people will buy less into the market so they’ll buy a less expensive home or a less expensive condominium. Good. We consider – I consider that desirable. So if it has that kind of cooling effect, that to me is a good thing.
I can tell you, you know, we consult broadly and I consult broadly personally with developers, with lenders, with builders, with lots of people and I’m concerned that in some markets in Canada there’s been excessive demand. And for that reason we’re doing what we’re doing today.
Moderator: Andrew Mayeda.
Question: Minister, if I may, I’d like to ask you specifically about the measure on $1 million homes. Government insurance would not be available for homes priced above – homes priced above one million. That covers a lot of people. I wish that covered myself but it doesn’t. And it covers a lot of people though, home prices above $1 million. Why did you decide to make that change and I’m wondering if that is a bit too much of a blunt instrument in the housing market right now?
Hon. Jim Flaherty: Well, you know, you have to go back historically and I’m sure Maxime, being an economist, would know the history of this and probably feel fairly strongly about it. I do too. You know, CMHC is the primary insurer which is a liability of the taxpayers of Canada on residential mortgages. It was created after the Second World War to deal with affordable housing challenges for our veterans and it has become something rather grander than that. If someone can afford to pay a million dollars or 1.5 or 2.5 million dollars and so on — I realize in Vancouver and Toronto this happens and other places as well — they don’t really need CMHC. That’s not what CMHC is there for. And for that reason we are making that exclusion.
Question: And I know you’re being diplomatic about not talking about the Governor – I know you’re being diplomatic about not talking about Governor Carney’s move on rates, any move, but I think he’s been fairly clear recently that he perhaps is not going to hike rates in the near future. I’m wondering if you feel like a bit of a Lone Ranger right now in your efforts to deal with a potential housing bubble in Canada because Mr. Carney might be on the sidelines a bit for the next little while.
Hon. Jim Flaherty: You know I’m very mindful of the world situation and this is a challenge for us. It’s a challenge for everybody. And I realize the challenges to central bank governors as well. You’ll have to ask Governor Carney about his views on interest rates. That’s his responsibility, not mine. But I am mindful of the overall fiscal situation. I’m concerned, obviously, that we may get a shock from Europe. We encouraged — the Prime Minister did, I did — we encouraged our European colleagues and allies to act with some alacrity and I hope they do. If they don’t, it’s going to be a very – it could be a very difficult summer.
Moderator: Ray Filion.
Question: Minister Flaherty, est-ce que vous pouvez nous expliquer en français en quelques mots la principale crainte qui motive cette décision aujourd’hui?
L’hon. Maxime Bernier: Mais pour répondre à la question de façon très – très simple et très direct, c’est de s’assurer la viabilité du marché hypothécaire à moyen terme au Canada et de faire en sorte que les familles canadiennes puissent continuer à avoir accès à la propriété. La mesure de un million de dollars est très importante aussi. On pense que les gens qui ont les moyens de s’acheter une maison de un million de dollars n’ont pas besoin d’assurance garantie par le gouvernement. Ils peuvent mettre une mise de fonds supérieur à 20 pour cent. Donc cette mesure-là s’applique seulement aux gens qui ne peuvent mettre – mettre une mise de fonds inférieure à 20 pour cent. Et ça va permettre en sorte de s’assurer de la viabilité du marché – du marché hypothécaire, comme les mesures antérieures ont été prises. Comme je l’ai dit tantôt, ces mesures-là ont eu un effet positif sur le marché puis, comme Jim a dit tantôt, s’il y a moins de personnes qui peuvent emprunter suite à cette mesure-là, c’est peut-être une bonne chose aussi parce que s’ils ne peuvent pas emprunter c’est qu’il y a pas les moyens de le faire et on veut s’assurer que les familles puissent faire investir dans leur maison de façon prudente et responsable, comme elles le font habituellement.
Question: Est-ce que vous craignez que trop de ménages s’endettent trop à l’heure actuelle?
L’hon. Maxime Bernier: Bien, je l’ai dit tout à l’heure, le taux d’endettement et au-dessus de 50 pour cent. C’est quand même assez élevé et on veut que la maison soit un moyen d’acquérir de l’équité, d’épargner et j’ai cité le dicton tantôt dans mon discours, “Qui paie ses dettes s’enrichit, qui paie ses dettes plus rapidement s’enrichit plus rapidement.” Donc c’est une mesure qui est pro consommateur.
Moderator: Les Whittington.
Question: Mr. Flaherty, I wonder if you could say a bit more about your thinking about the condo market in Toronto. You mentioned it. Is it just overheated, too much demand or is this also – to what extent does this have to do with – with speculators, that is flippers, people who are flipping houses, maybe in Toronto or elsewhere?
Hon. Jim Flaherty: Yeah, you know, we’ve been around long enough, you’ve been around long enough, I’ve been around long enough to see hot real estate markets. And, yeah, there are people who speculate and who flip, that’s true. In Toronto in particular what I’ve observed and heard about from developers is continuous building without restriction because of persistent demand. This concerns me and because it’s distorting the market, quite frankly. And for that reason we’re taking the steps we’re taking today. Now we did take some steps a couple of years ago with respect to speculation and those – you know, those steps have had some impact. But the point, quite frankly, is that we want people to make sure that when they purchase the most important purchase they’ll probably ever make in their life, that they do so in a prudent way. And some calming of the market is desirable.
Question: I didn’t quite follow you on the continuous building. Does that – one would think that would be a good thing because it would mean more houses – more units which would reduce the price inflation.
Hon. Jim Flaherty: I hear what you’re saying but it’s —
Question: (Inaudible) backwards somehow.
Hon. Jim Flaherty: Yeah, that’s now it’s working, is it? In fact, we’re seeing an acceleration of prices in Toronto. We have not seen a significant moderation of the market in Toronto and it’s important. It’s an important part of the country. Now Vancouver has seen some moderation but Montreal still has a strong condo market and Quebec City I’m told also. So, you know, it’s just a question of trying to moderate behaviour and I hope that Canadians will reflect before they jump into a market at the high end.
Moderator: Jason Fekete.
Question: Minister, thanks. Just a question on back in March, you remember for your pre-budget consultation a bunch of the economists that we met with at your office there basically all came out and said that they were concerned about this and they wind up at the mic, Derek Burleton and Avery Shenfeld and they indicated they’d like to see – a couple of them said they’d like to see the government reduce amortization back to 25 years, maybe increase the minimum down payment. Doug Porter and others said they weren’t as concerned. But how – how much of an impact did that meeting have on your decision and on what the economists were telling you because they clearly indicated they had some concerns?
Hon. Jim Flaherty: Some did and some did not. We watch the market. We do monitor the market. It’s been almost three months since the budget. When we’ve intervened before, three times before, we’ve always intervened outside the budget process. We’ll continue to watch too. I mean we’re going to watch this housing market because it’s – we want to avoid the kind of issues that have happened in other countries in recent years. And I’m satisfied we are and our market is okay. But I think there’s a prophylactic function for government on this with respect to insured mortgages and it’s our job to try to be ahead of things and act – and act in a measured way, listening to the market. And I have been listening to the market and, quite frankly, I don’t like what I hear, particularly in the condo market.
Moderator: And the final question, Bill Curry.
Question: Minister, I wanted to ask you about the overall caps on mortgage insurance. As you know, CMHC is near its $600 billion cap. In 2010, your budget bill also had an element that was going – it proposed to raise the cap to private lenders from I believe it was 250 billion to 350 billion yet that never happened in regulation. People are still waiting for that. So what is your plan on these two fronts? Are you holding the line on these caps as another way of clamping down on lending or are you planning to eventually do that raise on the private side?
Hon. Jim Flaherty: Both. We’re going to hold – no, the intention is to hold the cap on CMHC and to do the other pat on the private side. I encourage the private lenders in this business – the government is in this business. Maxime could elucidate on this better than I would. He would love to talk about it, I’m sure. But, you know, we don’t – the government doesn’t necessarily need to be at the end of the day in the mortgage insurance business.
Hon. Maxime Bernier: Oh, that’s great.
Hon. Jim Flaherty: We think alike. But we have to – we are in the business so we have to make sure that the exposure to the taxpayers of Canada is reasonable. So the cap will stay where it is for CMHC.
Question: And when will it rise for the private side?
Hon. Jim Flaherty: The regulations are being worked on so get that done.
Moderator: Ministers, thank you for being here.
Hon. Jim Flaherty: Thank you very much.
L’hon. Maxime Bernier: Merci. Thank you.