The new mortgage rules announced by federal finance minister Jim Flaherty will increase the odds of a soft landing for the housing market, according to BMO Economics.
The rule changes announced last week - which take effect July 9 - include reducing the maximum amortization for government-insured mortgages to 25 years from 30 years.
Sal Guatieri, senior economist, BMO Capital Markets, noted that the strong May price numbers add further validation to the new measures. Canadian home price growth remained strong in May and continued to rise faster than incomes, as strength in Toronto and a pickup in Calgary offset some moderation in British Columbia cities.
The Home Price Index rose 0.7% month-over-month in May, led by Calgary (1.0%) and Toronto (0.9%).
Prices rose in each of the six regions covered by the index, including Vancouver (0.6%). National prices are up 5.2% compared with a year ago.
“The new rules, which limit the availability of insured mortgages to amortizations of 25 years or fewer and to homes worth less than a million dollars, will curb demand and thus dampen prices,” said Guatieri.
“By our estimate, to neutralize the impact on mortgage payments of the amortization rule change, average home prices would need to fall about 3%. By helping to cool the market now, the rule changes should increase the odds of a soft - rather than hard - landing.”
@JHarrisonBIV
