The recent softening in some of Canada’s most expensive housing markets is a good thing, Finance Minister Jim Flaherty said Friday.
The weakening seen particularly in Toronto and Vancouver’s condo markets is “desirable” because “it’s better to have some softening in the market rather than have sudden movement,” the finance minister told reporters at a Toronto press conference.
“Canadians are increasingly getting the message that at some point interest rates are likely to rise, and that will mean residential mortgage costs will go up over time. Canadians are starting to understand the risk there, that it’s prudent not to extend oneself,” Flaherty said.
He highlighted the steps the federal government has taken to tighten the residential mortgage market. Most recently, Flaherty reduced the maximum insurable amortization period for mortgages to 25 years, from 30, and reduced the maximum amount you can borrow against your house from 85 per cent of its value to 80 per cent.
Toronto saw its condo sales fall 50 per cent in the second quarter of this year, while Vancouver saw a two-per-cent house price decline in July.
Flaherty said he continued to be worried about the level of mortgage indebtedness, but noted that “Canadians are increasingly getting the message that at some point interest rates are likely to rise, and that will mean residential mortgage costs will go up over time.”
“Canadians are starting to understand the risk there, that it’s prudent not to extend oneself,” he added.
Flaherty also hinted that the federal government could go back to stimulus spending if the economic slowdowns in Europe and China have an impact on Canada.
Asked whether Ottawa would respond to a new crisis with stimulus spending or austerity measures, Flaherty said he wasn’t going to “speculate on what might be,” but then added that “what has been done before can be done again” -- an apparent reference to the stimulus spending Ottawa engaged in during the recession of 2008-2009.
The finance minister expressed concerns about the Eurozone debt crisis, saying that “Canada, as an open trading country, is not immune to these developments.”
“The Europeans, quite frankly, have still not dealt with their crisis,” he said, adding that there is talk about a resolution in the fall.
“I’ll believe it when I see it,” Flaherty quipped.
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