The federal government’s attempt to cool the housing market “may have come too late” to prevent a harsh landing for residential real estate, Moody’s Investors Service is warning.
After Finance Minister Jim Flaherty announced last week that Ottawa is tightening the rules on government-backed mortgages to keep the housing market from overheating, Moody’s said it is concerned the efforts may not be enough. High levels of household debt in Canada have left consumers with little flexibility to adapt to shifting markets, the credit rating agency said.
“The government’s moves may have come too late, owing to the buildup in consumer debt that has already occurred,” Moody’s said in a research note Monday. “Canadian consumers’ reliance on low interest rates to support high debt loads remains a risk.”
Mr. Flaherty introduced several changes which the government hopes will result in a soft landing in the housing market, rather than a hard crash. Most notably, Ottawa reduced the maximum amortization on a government-backed loan to 25 years, from 30 years; and reduced the amount consumers could borrow against their home, to 80 per cent, down from 85 per cent.
It was the fourth time in four years the government has waded into the market to tweak mortgage rules to reduce the debt appetite of Canadians, who have sent household debt levels to record levels amid historically low interest rates.
Mr. Flaherty had been saying for the past six months that the government would step in “if necessary” but Moody’s worries Ottawa may have waited too long, and that a soft landing may be difficult to engineer now. (more)
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