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It may soon become harder to qualify for mortgage financing


Blog by Eric Steinbach | September 30th, 2016



Every morning over coffee, I scan online business news. It’s a rare day when I don’t see a story about Canada’s so-called overheated housing market.

Mind you, the stories are really about Toronto and/or Vancouver and ignore how price gains there don’t apply to a host of housing markets elsewhere in Canada.

The federal government is worried about how the continuation of low interest rates, combined with a shortage of homes, is translating into a growing number of highly-indebted homeowners and is under pressure to cool the “Canadian housing market,” which really means cooling price gains and mortgage debt in these two cities. Doing so in the short term is one of the stated goals in the National Housing Strategy being developed by the federal government.

It’s Finance Minister Bill Morneau’s job to worry about these kinds of things. He’s made it clear he intends to take action by making evidence-based policy decisions while recognizing that such decisions often have unintended consequences. No doubt any decision will be informed by research providing evidence about the most effective policy measures.

Research indicates that making it tougher to qualify for a mortgage is highly-effective action to reduce the growth in household debt. Think higher minimum down payments (as announced in 2015) or shortening the maximum amortization period (as announced in 2012 for borrowers with less than a 20 per cent down payment on their home purchase).

Regardless whether mortgage regulations are tightened, the law of unintended consequences means there will be some degree of collateral damage. In this respect, we can provide the government with evidence of how housing markets across Canada may be affected by regulatory changes being considered based on MLS® home sales statistics.

Regardless, tighter mortgage regulations will likely make it tougher to qualify for a mortgage. Further limiting access to home financing would cool the housing market even as mortgage interest rates remained low (or depending how regulations might be tightened, even if rates declined). Which is exactly what the government seems determined to do, while stopping short of over-tightening. Because no government wants to be remembered for creating a “made in Canada” economic recession through additional mortgage restrictions at a time when there are few other sources of economic lift.

This is especially true given how the Canadian economy shrank by 1.6 per cent annualized in the second quarter of 2016 — its biggest quarterly decline since early 2009 (circa the financial crisis). While the economy is widely expected to improve in the third quarter, its strength beyond that is an open question.

Canada doesn’t currently have an abundance of sources for economic growth. That’s what makes changes to mortgage financing regulations and their timing an especially perilous balancing act.



As CREA’s Chief Economist, Gregory Klump provides his views on the state of and outlook for Canadian housing markets to news media, policy makers, and real estate industry stakeholders. In 2012, Gregory celebrated his 20th anniversary as a member of the team at CREA. He’s an avid skier and snowboarder during the winter and a year-round crossfit enthusiast.