Starting this month, the federal government is toughening mortgage-lending standards for the third time in as many years in an effort to curb Canadians’ appetite for taking on too much debt, currently at a record 148% as measured as a ratio to disposable income.

The federal measures include:

• Limiting Mortgage amortization periods to 30 years from 35.
• Lowering the maximum amount Canadians can borrow to refinance their mortgages to 85% from 90%.
• Having the government withdraw its insurance backing on lines of credit secured on homes, such as home equity lines of credit.

Mortgage amortization periods were as long as 40 years as recently as 2008 when the government reduced them to 35 years. They had been at 25 years for decades before this housing boom. The Canadian Association of Accredited Mortgage Professionals says 30% of new mortgages last year were for amortizations of 35 years.

The housing market in Winnipeg still appears buoyant but in other areas the outlook is less sunny. Canadian household debt has now reached $1.4 trillion and the International Monetary Fund has called it the number one risk to the Canadian economy.

Eventually interest rates have to go up, possibly as early as this summer, and the fear is that higher payments on mortgages and credit cards will cause a ripple effect of mortgage foreclosures and bankruptcies. Rising monthly payments are fine if incomes are rising equally rapidly, but they are not. The price of fuel, food and clothing is also rising and inflation is eating into incomes.

The cure for inflation is higher interest rates, so we are back to square one and some homeowners will find themselves overextended and unable to keep up.

In April last year ,some new mortgage rules went into effect, forcing consumers to qualify based on a higher interest rate than was on their actual contract. It also required all housing investors — as opposed to people who use a home as principle residence — to have a 20% down payment, which mostly affected the condo industry.

Now, the government is planning to get tough on borrowing for the condominium sector, with new rules in the works to make it more difficult to qualify for a loan on a high-rise apartment. Finance department officials admit talks are underway on rules that would add 100% of condominium fees to the list of expenses that is measured against income when deciding whether a buyer can afford a mortgage.

Currently, only 50% of the condo fee is considered. This move, if adopted, has the potential to squeeze thousands of consumers out of the condominium market. To qualify for a mortgage, only 32% of gross income can go towards housing costs — which currently include mortgage payments — including principle and interest, taxes and utilities. Condo developments have been a very active sector in the Winnipeg market and such a move would undoubtedly slow the rapid growth in that sector.

Most analysts think Canada has fared well in the housing market, with none of the massive collapses seen in the U.S. and Europe. Many economists think gradual rises in interest rates will be manageable.

Contrast this with the dire U.S. situation. The city of Stockton, Calif. ranks first on the list of depressed house prices for the second time in three years. The community has been hit hard by the housing crisis, with the average property price dropping by 67% since 2005.

In Winnipeg, the Canadian Real Estate Association predicts home sales here will jump by 4.8% this year and a further 2.5% in 2012. It’s also confidently claiming average home prices here will rise 6.1% this year to $235,700 — and rise again in 2012 to $249,800. The average 2010 price was $222,132 — up 10.3% on 2009.

http://www.winnipegfreepress.com/our-communities/prime-times/Local-real-estate-market-shows-optimism–117250443.html

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