Canada’s big banks have been in favor of tighter mortgage rules. Now that they’re here, there’s concern that the department of finance has gone too far. David McKay, head of Canadian banking at RBC points out “This is not like turning a Ferrari, this is a big ship and it takes a while to turn, and sometimes if you over steer, you can’t re-steer the other way.” This is the same argument that the “steady as she goes” camp has been touting for the past year. National and Provincial mortgage associations have supported many of the new rules, but have been urging the government to give them time to take effect. The Canadian Association of Accredited Mortgage Professionals (CAAMP) in particular has presented several research papers demonstrating that, in time, previous rule changes will accomplish the government’s objectives without jeopardizing the health of the economy.
In response to the last round of mortgage tightening, TD bank issued a report that the mortgage changes will likely dampen growth in Canada by 0.20% next year, creating a drag on the economy and keeping a lid on consumer spending. It looks like a case of “be careful what you wish for” for the banks. With Jim Flaherty and Mark Carney so focused on slowing the housing market to avoid a crash, they may overshoot their objective and cause the very damaging they were working to avoid. For all our sakes, let’s hope that our captains-of-commerce have the foresight for a smooth sail.