July’s strong market results just may have been the latest tipping point for Ottawa and the Department of Finance (DOF). A new government initiative to slow housing growth is restrictions on cost effective funding sources. Canada Mortgage and Housing Corporation (CMHC) has already notified banks and other mortgage lenders that it’s putting a $350 million monthly cap on the amount of Mortgage-Backed Securities (MBS) that each lender can issue. Although this measure is unlikely to cause any further tightening of mortgage rules it will make mortgage funds more expensive to consumers. Estimates of the mortgage rate increases range anywhere from 0.20% to 0.65%.
DOF tightening initiatives have been arriving steadily for the past 4 years. Several rounds of mortgage rule tightening were followed by direct intervention on interest rate setting policy which is now being followed by securitization restrictions. It seems there are limitless means by which Ottawa can deter housing growth in Canada.
Despite the measures enacted to date Canadian real estate has continued to grow at a healthy pace. This trajectory suggests that Ottawa has been making the right calls with regard to the real estate market at large, but questions remain as to the fairness of the interventions. First time buyers have been hit particularly hard as have self-employed home owners.
The real estate market can’t keep absorbing Ottawa’s growing list of restrictions and left unchecked we will face a made in Ottawa recession. It’s time for Ottawa to back off of the housing market and to let its previously implemented actions take root.