TORONTO (Reuters) - High housing prices and household debt are Canada’s biggest economic concerns, Finance Minister Jim Flaherty said in weekend interviews that also warned of a crash in Toronto’s booming condo market and hinted at a crimped role for the government’s mortgage insurer.
Speaking to the Globe and Mail and the National Post, Flaherty said he had spoken to bank CEOs about their “race to the bottom” on mortgage interest rates, which he described as irresponsible.
He said Ottawa was considering further changes to rules at the Canada Mortgage and Housing Corp, which the government this week placed under the authority of the Canadian banking regulator in a nod to the agency’s huge financial role.
The regulator is set to probe CMHC’s mortgage backed bonds business, investigating a type of security that played a major role in the U.S. housing market meltdown, and Flaherty said CMHC might one day get out of the mortgage insurance business.
“Over time, I don’t think it’s essential that a government financial institution provide mortgage insurance in Canada,” he told the Post. “I think there is a role to regulate but whether we, the Canadian people, have to be the owners and shareholders of a financial institution to do this is a question. I don’t think it’s essential in the long run.”
Canada escaped the housing price implosion seen in many U.S. markets, and while prices dipped during the country’s short-lived recession, they soon recovered to well above pre-recession levels fueled by record low interest rates.
Bidding wars remain common in markets like Toronto and Vancouver, and Toronto is seeing a record number of condominium developments, a factor that Flaherty singled out for special concern, noting that developers were building before they found buyers.
“I also talk to developers, and I hear from some of them who are in the business of building condos that they don’t really have a plan, they’re just going to keep building them until people stop buying them. It’s not exactly a fiscal plan,” Flaherty told the Globe. “It will lead to a crash.”
But Flaherty also noted that banks had stopped the race to lower mortgage rates, and he described the risk to the overall market as modest.
Canadian home buyers must take out mortgage insurance if their downpayment on a house is less than 20 percent.
Canadian banks have mostly been more cautious lenders than their U.S. counterparts, without the aggressive sub-prime mortgages to borrowers with poor credit ratings that were such an important trigger to the U.S. crash.
Reporting by Janet Guttsman; Editing by Vicki Allen