Flaherty sees no housing bubble at present

Mon Dec 21, 2009 5:05pm EST
 
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By Randall Palmer

OTTAWA (Reuters) - The Canadian government sees no evidence of a housing or household debt bubble. but if it does, it can make mortgages harder to get, Finance Minister Jim Flaherty said in an interview with Reuters on Monday.

In any case, Flaherty said, the government was not close to taking action but was rather watching and monitoring along with the Bank of Canada.

"If we see -- which we have not seen -- but if we see clear evidence of an upward bubble, particularly with respect to insured mortgages, then we have some tools available which we've used before and we can use again," he said in his Ottawa office.

Flaherty said it was not surprising to see substantial activity in the mortgage and housing markets given low interest rates and the fact that people had held back on big investments during the recession.

He said he was not as concerned about housing prices so much as the ability of Canadians to service their debt.

"I'm more concerned about affordability (of mortgages) and people not being lulled into a false sense of security, taking out relatively low interest-rate mortgages, when we all know that the mortgages rates have only one way to go over time -- and that's up," he said.

He said the government could tighten standards, raise the size of required downpayments from the current 5 percent and reduce the maximum amortization of a loan from 35 years.

Shortening the amortization period would mean mortgage payments would have to go up to pay the loan off more quickly, and might make people think twice about taking on more debt.   Continued...

 
<p>Canada's Finance Minister Jim Flaherty listens to a journalist's question during a news conference, about Canada's Economic Action Plan, at the Auberge St-Antoine in Quebec City December 11, 2009. REUTERS/Mathieu Belanger</p>