OTTAWA: The Canadian government announced Friday a tightening of mortgage rules to curb overspending on homes in a sluggish economy that could collapse with the burst of a possible housing market bubble.
Finance Minister Bill Morneau unveiled the increase in minimum down-payment for government-backed mortgages from five to 10 percent for homes priced over Can$500,000 (US$365,000) to address “potential future vulnerabilities in our housing sector.”
“While current market trends have largely been supported by strong fundamentals, there’s significant variation across Canada in terms of the pace of housing market activity and potential vulnerabilities,” he said.
The new regulations, he added, aim to “protect Canadians and the economy from potential excess housing market volatility.”
The Canadian economy exited a mild recession in the third quarter ending September 30 but the central bank revised growth forecasts downward to 1.0 percent for 2015, followed by 2.0 percent next year.
Meanwhile, average home prices in Canada rose eight percent year over year in October, according to the latest figures from the Canadian Real Estate Association, supported by record low lending rates.
This price jump was double the rates recorded in 2013 and 2014, and was due mostly to strong sales in Toronto (prices rose 10 percent) and Vancouver (up 15 percent), where the real estate markets continue to defy projections and warnings of overheating.
The Canadian dollar meanwhile fell below 73 cents US on Friday, while exports crucial to the Canadian economy have not rebounded as hoped. Canada’s oil patch continues to reel from low oil prices that are now at a seven-year low.