What's good for the goose...
A lesson that every parent learns at some point in their life is that you are always better to lead by example. Enquiring minds of young children don’t take “just do it because I say so” as an answer, and neither should they. There is an opportunity for learning and in grasping that, they come out with a child’s favourite word... WHY?
That was the favourite word in the mortgage and real estate community recently. Why did Jim Flaherty attempt to change the lending landscape.
Last week, we had a bump in sales activity driven by the end of government insured 30 year mortgages. Of course any headline you may have read almost fraudulently stated that 30 year mortgages were no longer available. I am sure that Mr. Flaherty wishes he had that much control over the free market. In truth the landscape he focussed on was the area where the government is involved, the insured mortgage market.
As Canada looks at further budget tightening, they figure that we, the average consumer should do the same. So, in the past few days, the mortgage insurance rules have changed. The government will no longer offer (via CMHC) insurance for 30 year mortgages.
Will that solve the problem, kill the real estate markets (as some pundits have suggested), change consumer confidence? None of the above in my opinion. There were a basket of changes that meant that lending criteria generally just tightened up. However, if you have been looking for a mortgage recently, you would already have found that out. Can a consumer access a 30 year mortgage. The answer is of course, yes. But is it a good thing? I happen to personally think it is not.
Increasing the amortization period of mortgages did nothing to reduce the payments for the average Canadian, they simply allowed them to buy more property. The standard of living in Canada has skyrocketed compared to perhaps 40 years ago. We expect bigger, better, more luxurious, fancier and the big challenge was that we were starting to expect that when we were 18!
My first house was a 1960’s Bluebird tralier (caravan). It was 26’ long, 8’ wide and very old and smelly with two wheels and a tow hitch. I begged my future father in law to let me park on some land that he owned so that I could save enough money for a downpayment on a house. A few years later, that day arrived. My wife and I owned our first house. One hundred and sixty years old, all 400 square feet of it and with a free outside toilet and bathroom!
Today of course, our expectations appear to be different and I believe what our Finance Minister was saying with these changes and others that came through at the same time was that our expectations need to come back to reality.
For the experts who are suggesting that our housing economy will suffer because of these changes, they should perhaps think of the lives of a young couple who stretch beyond their means and experience severe financial hardship before reaching the age of 25! Is our economy more important than protecting them at a young age and mentoring them. I personally don’t believe it is.
The bottom line from my perspective is that changes were needed and like everything else it may taste a little sour at first, but the industry will adapt and react, perhaps by building some smaller starter homes. Our first tiny home kept us comfy for two or three years and made us a small profit before we came to Canada with a slightly larger down payment.
Let's teach by example so that our Finance Minister does not have to pass regulations that should be unnecessary in the first place.
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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet presents its columns "as is" and does not warrant the contents.
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