Mortgage Rules Will Sideline Some Buyers
This week, Finance Minister Jim Flaherty did just that. As of March 18, the government will no longer insure mortgages with amortization periods of more than 30 years. That will keep some potential home buyers out of the market, and in theory, help stop already debt-burdened households from going even deeper. Ottawa will also make home refinancing rules tighter, among other moves.
Additional changes to mortgage financing rules would raise the barrier to homeownership excessively and destabilize housing markets and the economy. In particular, we are concerned about the negative impact modifications to the allowable amortization period or minimum down payment requirements would have. These changes would create affordability problems, especially for first-time buyers. First-time buyers are the first link in a chain reaction of real estate activity. They allow existing home owners to change properties or rent. Creating burdensome barriers for first-time buyers will seriously impact the rest of the market, including retirees looking to downsize.
Further tightening of mortgage rules would have other far reaching consequences for the economy. It risks causing a home price correction, a drop in the net worth of Canadian households, lowered economic growth and reduced tax revenues. Consumer confidence would be damaged, labour mobility would be impeded, and unemployment would stay elevated.
Canada Debt Warnings
Canada's Superintendent of Bankruptcy issued a warning to Canadians about the dangers of high household debt Friday, adding his voice to the chorus from officials concerned about the amount of leverage the average resident now has. In a letter attached to the latest report on bankruptcy statistics, James Callon said it was "important for Canadians to be aware of the risks and possible consequences of taking on a large amount of debt." He noted that a significant event - a change in employment such as job loss, or a change in family status such as a divorce, or a serious illness - "can cause a huge drain on finances." If such an event were to suddenly occur in a household carrying a large amount of debt, that could lead to "the harsh realities of insolvency," Callon said. The number of consumer insolvencies filed in Canada in October 2010 was 22.5% higher than in 2007-08, before the economic crisis that led to the recent recession. Household debt in Canada reached a record C$1.41 trillion in December.
According to Statistics Canada, debt to household income levels has reached a record 148%, rising above comparable U.S. figures for the first time since the late 1990s. Bank of Canada Governor Mark Carney recently warned that a growing number of Canadian households were vulnerable to adverse shocks, and more would become vulnerable if interest rates go up from record low levels as expected. Finance Minister Jim Flaherty has also sounded numerous warnings on household debt levels in recent months.
Personal Debt A Threat To Recovery
Canada’s household debt burden, now as heavy as that of the United States, represents a significant threat to the country’s economic recovery, the International Monetary Fund says. Sounding a note of alarm, the Washington-based IMF used its latest review of Canada’s economy to highlight the risks that come with Canadians’ record levels of mortgage debt, credit-card debt, lines of credit and other liabilities. Statistics Canada said last week that the ratio of household debt to disposable income reached 148.1 per cent in the third quarter.
Debt Crisis Threatens to Bring Down US Cities
More than 100 American cities could go bust next year as the debt crisis that has taken down banks and countries threatens next to spark a municipal meltdown, a leading analyst has warned. Meredith Whitney, the US research analyst who correctly predicted the global credit crunch, described local and state debt as the biggest problem facing the US economy, and one that could derail its recovery."Next to housing this is the single most important issue in the US and certainly the biggest threat to the US economy," Whitney told the CBS 60 Minutes programme on Sunday night.
Stuxnet Virus Set Back Iran
Top German computer consultant tells 'Post' virus was as effective as military strike, a huge success; expert speculates IDF creator of virus. The Stuxnet virus, which has attacked Iran’s nuclear facilities and which Israel is suspected of creating, has set back the Islamic Republic’s nuclear program by two years, a top German computer consultant who was one of the first experts to analyze the program’s code told The Jerusalem Post on Tuesday. “It will take two years for Iran to get back on track,” Langer said in a telephone interview from his office in Hamburg, Germany. “This was nearly as effective as a military strike, but even better since there are no fatalities and no full-blown war. From a military perspective, this was a huge success.”
Iranian Nuclear Scientist Assassinated
Iran's phantom enemies unexpectedly attacked the country on November 29. Two cars exploded in Teheran almost simultaneously. Iranian nuclear physicist Majid Shahriari was killed in the explosions. Another nuclear physicist, Fereidoun Abbasi, was seriously injured.The two scientists worked at the Shahid Behesti University. Professor Shahriari played a key role in the implementation of Iran's nuclear programs. Shahriari chaired the department for nuclear engineering and was involved in the works to develop nuclear reactors of new generation.
Shadow War
The covert operations that target suddenly came to light with explosive violence and stunning implications for the future of warfare on Nov. 29.
Canadians' debt-to-income ratio now higher than Americans
Canadians’ debt-to-income ratio is now higher than Americans’ for the first time in a dozen years, leaving policy makers with a dilemma: Rein in spending and risk hampering the recovery, or do nothing and risk a cascading financial failure....The ratio of household debt-to-disposable income reached the highest on record in the third quarter, at 148.1 per cent, Statistics Canada said Monday, a 6.7 per cent rise in Canadian household obligations from a year ago. The ratio tops the 147.2-per-cent ratio in the United States and comes as incomes fell 1.5 per cent during the same three-month period.
It’s time for Ottawa to crack the whip on borrowers
It’s time for an intervention. Canadians are unable to shake their enslavement to debt, and our banks are unable to stop themselves from supplying the goods. Warnings to stop living beyond our means from mom and dad, in the form of Bank of Canada Governor Mark Carney, aren’t making much of an impression.
Analysts fret over housing, want to hear from Carney
The Scotia Capital economists noted that the home ownership rate in Canada is at a record high of about 70 per cent - that's a bit more than the peak in the United States. Home prices are also at record levels and the market is overvalued, while the debt-to-income ratio sits at 145 per cent, which is "not terribly lower than a properly defined U.S. comparison." The ratio of debt to assets, meanwhile, is the second-highest in the G7.
Ottawa, banks discuss measures to rein in Canadians’ personal debt
Ottawa is talking to the banks about putting new measures to curb the rise in consumer debt into the next federal budget. Deputy finance minister Michael Horgan has broached the topic in prebudget consultations with executives from Bay Street firms, sources say. Several bankers have told him that they would support further federal moves to cool the mortgage market, including cutting the maximum term of mortgages or increasing the minimum down payment.
Global risks rising: Bank of Canada
The Bank of Canada warned Thursday that the risk of another global economic shock is rising and Canadians may not be prepared for it.The recovery in Canada and globally is slowing, the central bank said in the December issue of its Financial System Review. It said the main risk is the growing seriousness of Europe's government debt crisis. Another threat is the unwillingness of countries to take action to reduce imbalances in exports and imports between countries.Canadians won't be spared another shock, the bank said, because during the current period of tough economic times, they have continued to take on debt.Household debt has risen to 145 per cent of disposable income as Canadians have taken advantage of super-low interest rates to purchase homes and other consumer items on credit.
Bankers Sound Alarm On Loans
Some of Canada’s top bank executives are growing increasingly uncomfortable with the level of debt Canadians are taking on through long-amortization mortgages. “I think all of us are looking at [what to do],” said Ed Clark, chief executive of Toronto-Dominion Bank, adding the current situation “is not a good thing.” Speaking in an interview, Mr. Clark said TD has already acted to slow lending but it’s now up to the federal government to take steps such as reducing maximum amortization periods on home loans to 25 years from 35 years or lowering loan-to-value ratios. “These are exactly the things that government should be doing and there’s been a lot of discussion,” he said.
