Canada's Housing Bubble

Mar 17, 2011 MARKUS ERMISCH Calgary Sun

Tighter mortgage rules could erode some of the price gains in the national real estate market, says the Canadian Real Estate Association.

But that may not necessarily be the case in Calgary, where the impact of more stringent lending rules may have been overstated, said Sano Stante, head of the local realtors organization.

“I’m not convinced that new mortgage rules have been that significant in impacting our market,” said the president of the Calgary Real Estate Board.

Stante said it’s “questionable” to exclusively link sales activity in the run-up to the March deadline to the new rules federal Finance Minister Jim Flaherty announced in January.

Under the new rules, the government has reduced the maximum amortization period of government-insured mortgages to 30 from 35 years. This means that although total interest payments are reduced, monthly payments will rise for many buyers.

To avoid higher monthly payments, the logic goes, many buyers tried to sign mortgages before the deadline, sparking a flurry of activity that drove up prices. Once sales die down, prices could slide.

Although this may be the case for the national market, Stante said it doesn’t have to be the case in Calgary, where the economy has been relatively strong.

An abundance of new listings have moderated price increases in Calgary, despite increasing sales so far this year.

In the first two months of 2011, sales rose nearly 9% over the same period last year, while prices rose less than 2%. New listings rose just over 6%.

Stante said increased optimism about job growth, coupled with a faster pace in the oilsands means sales will continue rising this year, while prices will rise moderately.

On a national level, it may be a slightly different story.

The national average price for homes sold in February rose 8.8% compared to the same period last year, to $365,192, shows data released Tuesday by the Canadian Real Estate Association. Taking Vancouver out of the equation, where prices have spiked to record numbers, the national average price has risen 3.4%.

“While that’s still stronger than in the past six months or so, national average price gains may recede after tighter mortgage regulations take effect (March 18),” said CREA chief economist Gregory Klump.

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