Tara Perkins – The Globe and Mail

Canadian housing economist Will Dunning says that actions the federal government took to cool the housing market back in 2012 could make any price declines in Toronto’s condo market worse in the years to come.

Comment: But condo prices are not declining, so why would it matter?

“If and when there is a correction in the condo market, the severity will have been aggravated by the actions of the federal government, which elected to depress demand at a time when demand was already beginning to weaken organically and a wave of supply has been developing,” Mr. Dunning writes in a new research note.

Comment: But there is no correction coming. There are no signs of a correction. There are no triggers for a correction. Talking about “if” there is a correction when there isn’t going to be one is irresponsible and plain fear-mongering.

Former Finance Minister Jim Flaherty tightened the country’s mortgage insurance rules four times in the years after the financial crisis, as he sought to stem the rise of consumer debt levels and home prices. Mortgage insurance is mandatory in Canada when a federally-regulated bank sells a mortgage to someone with a down-payment of less than 20%. The changes included cutting the maximum amortization of an insured mortgage to 25 years from 30.

Comment: No, the mortgage rule changes were not designed to stem the rise of consumer debt levels and home prices. They were meant to ensure that no one go in trouble with mortgages that had become too easy to get.

Many economists have said that Mr. Flaherty’s moves were wise, and that the housing market would have become more inflated and prices more overvalued without them.

Comment: Those same economists say the market is overinflated right now and that we are in the middle of a bubble and that we are all going to explode tomorrow and die. Could be that mortgages that were easier to get would have pushed prices higher, but with limited supply and prices that are already high, not many more people would have been entering the market. It did prove how safe and solid our market is, considering it is still booming along, even with the tighter measures.

But Mr. Dunning, who does his own research on Canada’s housing market and also does work for the association that represents mortgage brokers, suggests that the success of the mortgage insurance rule changes is yet to be determined.

He sketched out a scenario in which Toronto’s condo prices would fall by about 10%, as a result of rising supply and falling demand.

Comment: But that is not going to happen, so it is stupid to talk about it like it could.

“I believe that the federal mortgage insurance policy changes of the past few years will continue to weigh on demand, for both owner-occupants and investors,” Mr. Dunning writes.

Comment: Thank god the rule changes dampened demand, as it is we have a severe supply shortage.

His 10% price correction scenario also assumes that job creation does not bounce back to a healthier rate in Canada’s most populous city, and that interest rates remain constant.

Comment: Even if prices did fall 10%, many people waiting and hoping for just that occurrence would jump into the market. At the same time, many sellers would hold off, or pull their properties off the market, waiting for prices to rise again. So demand would increase while supply drops, pushing prices right back up again. Any market correction will be short lived, if one is even possible. Supply is too low and demand is too high, a drop in prices simply cannot happen under those circumstances.

“The timing of this process is highly uncertain – it probably won’t start for at least a half-year, and if there are further delays in (condo construction) completions, it could be a long way off,” he writes.

Comment: Or, like, never.

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto real estate agent with Century 21 Regal Realty.
He did not write these articles, he just reproduces them here for people who
are interested in Toronto real estate. He does not work for any builders.
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