OTTAWA (Reuters) - The Canadian government will further tighten rules on mortgage lending if it see signs that the housing market is overheating, Finance Minister Jim Flaherty said on Monday.
Flaherty said, however, that there are signs that the housing market is leveling off after a frenzy of activity that powered much of the country’s recovery late last year and earlier this year.
He said measures taken by the government to make it harder for some homebuyers to get mortgages have helped to cool the market.
“We continue to watch. If it’s necessary to tighten the rules further, we will tighten them further,” Flaherty told reporters after a meeting with private-sector economists.
“Our concern is always ensuring that the housing market does not overheat and in particular that the mortgage market does not overheat. We watch affordability, we watch to ensure that marginal investments are guarded against.”
Sales of existing homes rose in August for the first time since March and the market is expected to further moderate going forward.
“The approach taken here in terms of tightening credit standards, it’s going to take some time to flow through the system,” said Brian Bethune, an economist at IHS Global Insight, who was at the meeting with Flaherty.
New rules came into effect in April requiring home buyers to qualify for five-year fixed-rate mortgages even if they decide on lower-cost variable rate mortgages.
Home owners must also put a minimum down payment of 20 percent for insured mortgages tied to properties not occupied by the owner, a move aimed at speculative housing investments.
The government also lowered maximum amounts that can be withdrawn when borrowers refinance mortgages to 90 percent of the value of the home, from 95 percent.
Last week, however, the Bank of Canada warned that household debt levels were rising faster than anticipated.
Flaherty reiterated on Monday that the government plans to balance its budget in the medium term and that it will wind down its stimulus measures for the Canadian economy on schedule.
“We are looking for a balanced budget in Canada in the medium term, so somewhere in the neighborhood of 2014, 2015,” he said.
Ottawa expects its 2009-10 budget deficit to be just over C$50 billion, or about 3.5 percent of gross domestic product.
The government has vowed to cut off its stimulus spending by March of next year.
Reporting by John McCrank; editing by Peter Galloway