It’s not only the elephant in the room, it’s the elephant in the whole house. Wait a minute: in fact, the elephant is the whole house, and to continue that metaphor for one more thought, the federal government is justifiably afraid of doing anything that might suddenly turn that elephant white.
For the fourth time in the last four years, the federal government has fine-tuned and tightened the rules around government-backed mortgage insurance, trimming the length of government-insured mortgages and the amount that Canadians can borrow against their homes.
The government has gone out of its way to downplay the impact of the changes, pointing out that less than five per cent of homebuyers will actually be affected by them.
But, because the steps are small and affect so few, should we think the federal government isn’t concerned about the housing market and the ever-increasing level of Canadian household debt?
Because the fine-tuning isn’t a sign of the federal government being disinterested.
The fact that it’s taking such baby steps shows exactly how concerned it actually is. Why? Because homes are far and away the largest assets that Canadians families hold — and nobody wants to precipitate a run for the exits.
Think of it this way: if your car was teetering back and forth on the edge of a cliff, you wouldn’t violently slam it back and forth from “drive” into “reverse” and then back again, trying to get the wheels to grab. You especially wouldn’t try that tactic if the car next to you — an American sedan — had successfully pitched itself off the cliff trying the same manoeuvre just a year or so before.
No one really wants to say houses cost too much for Canadians, (although they do — just stop to consider the twofold or more increases in house prices in St. John’s and area over the past five years).
Instead, people like Avery Schenfeld, the chief economist with CIBC World Markets, tell business reporters at The National Post things like there’s “a general feeling that, more than just the condo market, the Canadian housing market is starting to get a little bit overdone in terms of price momentum.”
Nobody wants to push the panic button, even though everybody wants Canadians families to take their foot off the spend-celerator, at least as long as they’re doing that spending with credit.
The truth is, at least for the size of their household incomes, Canadians have bitten off more financially than they can chew. To put it more simply, we’ve bitten off more than we can even fit into our mouths.
Lots of people don’t want house prices to fall. Governments want houses to be built to keep the economy turning over, municipalities want prices (and assessments) high to fatten their tax rolls — and ordinary homeowners (and banks, too) are terrified by the idea that the housing bubble might burst, leaving them holding the bag on mortgages that are suddenly larger than the value of their homes.
There are reasons to slow down.
But if repeated tinkering doesn’t end up injecting some common sense into the housing market, something else will. And it won’t be pretty.