Thursday, December 15, 2011

Canadians drowning in Debt: further Decreases in Amortization called for

The cost of housing gone through the roof since 2006 and the main reason for that is the Conservative government decided pour fuel on an already red hot real estate market. The Conservatives extended the mortgage amortization period from 25 years to 30 years in February 2006, extended it to 35 years in July of 2006 and extended it yet again to 40 years in November 2006. During this period they also reduced the needed down payment on second properties from 20% to 5% and allowed for 0 down on one's primary residence. Ever since the down turn, Jim Flaherty has been scrabbling to undo the damage his past actions have done. Flaherty first reduced amortization period from 40 years to 35 and again mandated a 20% down payment on secondary properties and 5% on primary properties in October 2008 and on March 18th he reduced the maximum amortization period to 30 years. Never once acknowledging that it was he who raised the amortization period to begin with, Jim Flaherty has repeatedly over the course of the last 2 and half years claimed that reducing the amortization and increasing the minimum downplayment was the right thing to do. "In 2008 and again in 2010, our government acted to protect and strengthen the Canadian housing market,".

With Canadians drowning in debt, Ed Clark, the chief executive officer of Toronto-Dominion Bank has said Flaherty should go back to where he started. That is, amortization should be capped at 25 years.

The problem is that it would be tricky to do this without creating a downturn in the housing market and this would not reverse the damage that has already been done by Conservative stupidity. Whether it be Bloomberg, the Economist, the IMF, Paul Krugman and, if you read between the lines, Mark Carney many are worried that Canada's housing market is headed for a crash and that such a crash would have dire implications for Canada. For one thing, since 2006 Canadian mortgage and housing corporations liabilities have gone from 100 billion to 500 hundred billion. If the housing bubble bursts and Canadians start defaulting on their mortgages, the Canadian tax payer will be picking up the tab. The Canadian government guarantees all that debt.

1 comment:

WesternGrit said...

These "economic geniuses" came to power with a $13 Billion Dollar Liberal SURPLUS, immediately created a structural deficit with their ridiculously asinine tax cuts (against what most economists advised), and created a housing bubble that will challenge Canadians' financial security for at least a decade.