Housing market supported by strong fundamentals

There has been a lot of yodelling from the top ranks of major Canadian banks lately with regards tightening up mortgage regulations. TD CEO Ed Clark has been campaigning government to lower mortgage amortizations to 25 years and tighten mortgage rules.

To rebut these comments Scotiabank CEO Rick Waugh reminded everyone that banks have an inherent responsibility to lend wisely and not take on extra risks.

“I agree with our government,” said Waugh. “It’s up to the banks themselves – not the government or regulators – to manage our risks and advise our customers appropriately. Likewise, it’s the responsibility of government to set fiscal and monetary policies, and the level of interest rates, according to prevailing conditions,” he added.

Waugh also added at their annual meeting on April 3rd, “That the current concerns for the Canadian housing market are reason for caution but not for pessimism as Canadian household balance sheets remain solid and our housing market is supported by strong fundamentals.

“Supply is balanced and Canadian banks finance largely on presales and cash equity, where loan-to-value ratios show our customers have true equity. Our customer delinquency rates are well within parameters and we can manage through any potential housing problems.”

Over the past few years the government has made it more difficult to purchase or refinance a home and it has caused a lot of angst with a certain demographic of people. Tightening further is likely at some banks and lenders but at least for now it’s not coming from the government. If anything it’s going to come from banks tightening their own internal regulations if their delinquency rates are getting out of control.

Ed Clark of TD is likely campaigning for these rule changes presumably because TD doesn’t want to lose market share by taking its own advice literally. He’s likely not the only one beating this drum but if they truly believed that the market required these types of changes don’t you think that they would react defensively and change their own set of rules?

Canada sits in a vicarious position globally over the past few years as countries around the world listen to what our fiscal policies have been to get us to this position. Previously though, Canada was regarded as the unwitting teenager that wasn’t mature enough to understand the vehement “upside” to credit risk, but now our banks are regarded as leaders around the world and our housing market has proven to handle itself.

Nevertheless, the past few years have been tumultuous to say the least and it’s a nice reprieve that our government realizes that the changes over the past few years haven’t been fully met in the market to understand what it’s actually created or diffused. It’s refreshing that a common sense CEO such as Rick Waugh of Scotiabank agrees with the current rhetoric to leave well enough alone, and that if you think that changes should be made maybe it’s time to be more retrospective on your own books rather than the whole, because other ships are sailing fine.

If yours isn’t, plug your own holes before it sinks.

Jean-Guy Turcotte is an Accredited Mortgage Professional with Dominion Lending Centres-Regional Mortgage Group and can be contacted for appointments at 403-343-1125 or emailed to jturcotte@regionalmortgage.ca.