Canada says will act if mortgage market overheats

Mon Oct 4, 2010 2:46pm EDT
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By John McCrank

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.   Continued...