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Flaherty Dismisses Fears Over Housing Slowdown

This articles ties in with yesterday’s post:

Finance Minister Jim Flaherty is dismissing fears about Canada’s housing market, saying the current slowdown is welcome news and that there is no need for further government intervention.

While some observers are expressing fears that a steep correction is underway that will bring down housing values and possibly affect bank credit ratings, Flaherty said Tuesday that he believes government mortgage tightening last July actually helped avert what could have turned into a housing bubble.

“I’m comfortable about where we are,” he said in a telephone interview from France, where he announced new government financing for the construction of a visitor’s centre at the Vimy Ridge war memorial.

“I’m pleased in particular that the condo market in big cities has fallen back. I’m also pleased with some other moderation in new house construction and in demand for mortgages. I think these are healthy developments because I think we were beginning to see some indications of the beginning of a bubble.”

He said the recent slowdown is at least in part a consequence of his decision to tighten mortgage rules last July.

Home price increases falling

A new Teranet house price report released Tuesday showed home price increases slipped to two per cent in April from 2.6 per cent in March. Analysts noted that was the weakest performance since the recession for April, traditionally a good month for sales and prices.

While home sales have fallen nationally, and starts are now in the 180,000 a year range, well down from over 200,000 last year, home prices have stubbornly resisted that trend in most markets.

However, analysts note that prices are often the last indicator to kick in when a residential market falls, and some have speculated that prices could plunge by as much as 25 per cent, even further in the overheated Vancouver market.

The Office of Superintendent of Financial Institutions has told banks it is looking at their holdings of non-insured mortgages — those with at least 20 per cent equity — to determine the systemic risk should values plunge.

But Flaherty said he has no plans to further tighten government-backed mortgages for homebuyers with as little as a five per cent down payment. After tightening rules four times in the past four years, Flaherty said he has done enough.

“I’m not going to intervene in the mortgage market, I don’t need to,” he said.