Flaherty Says No Housing Bubble Yet

By Bruce on December 29, 2009 4:52 PM in Mortgages in Canada | | Comments (0)

According to Finance Minister Jim Flaherty, the federal government is prepared to further reduce the conditions under which the Canada Mortgage Housing Corporation backs high-ratio mortgages in order to ensure that the housing boom doesn't become a housing bubble.

In 2008, when the sub-prime mortgage crisis hit the United States the Finance Department made new rules for high-ratio mortgages that made it more difficult for prospective home owners to receive government backed mortgage insurance from the CMHC. The Finance Department shortened the amortization period allowed from 40 years to 35 and required a down payment of at least 5% of the value of the property.

Flaherty has said that if necessary he would again limit both the amortization period and require higher down payments. However, Bay Street economist David Rosenberg estimates that housing prices are already overvalued by 15% to 35% and that we're already in bubble territory.

Like most housing bubbles, we'll have to wait and see how this situation plays itself out.