Mortgage default insurance regulation has changed. This may or may not affect some borrowers. Few border-line borrowers will be affected. Some rich buyers may not get CMHC insurance. Apart from effected few – it appears that the business will be as usual. That is what some established Greater Toronto Area real-estate agents think.
We approached few realtors who expressed similar thoughts. According to one realtor “This new regulation will bring healthy supply and demand back in this business”. Another told us that this will forcefully stop the borrowers from over-stressing their household budget. Overall – it seems that the low to mid-range housing market will not be effected by this change.
Pointing out at condominiums as most vulnerable sector is not logical too, price range varies in the condo market as well. It is not time to analyse the decision was balanced or over-reaction, rather it is time to look at the fundamentals and influence of it.
Global Debt Factor:
Right now the global economic turbulence is one of the most influential factor on Canadian economy. Faltering European debt condition lifting Canadian bond prices and thus long term bond yield outlook remains ultra-low.
Local Job Factor:
Hiring remains fragile. Although there had been some temporary spike in employment but they ended up to be spurious. Last month Canadian employers took their “Help Wanted” signs off. High workforce participation rate is very much needed to increase the velocity of money. Without that Bank of Canada would not be able to boost the economy even after working overtime at the mint.
Local Consumer Confidence Factor:
Without jobs – it is obvious that a consumer would not have much of an appetite for purchase.
Canadian Inflation Factor:
As we mentioned earlier; it is possible that we are heading towards a long term deflationary economy. Interest rates will remain low and house price cannot escape the reality of non-existing inflation for long. Without inflation BOC has to sit on the sideline and first write then read their own philosophical publications. Sensing that – some banks have already updated their prediction (post regulation) – in their recent forecast they said that the overnight rate will remain low till end of this year or beyond.
Debt Fear:
Consumers are also reasonably nervous about the excessive debt factor. Deflationary economy will blend well with hyper-sensitivity of debt. As consumers we will grow our savings and complaint that saving has no reward. That is going to be the norm of the future until government start encouraging spending money again.
Until then – au-revoir Mr. Inflation.
