Housing dip not bad news

Kamloops Daily News
December 6, 2012 01:00 AM

For years, everyone from Bank of Canada governor Mark Carney to Finance Minister Jim Flaherty - and for some of us, our financial consultants - have warned Canadians about our ballooning debt.

In short, we are up to our necks in hock.

Canadians are at record levels when it comes to being in the red, with households across the country taking in about 162 per cent more debt than their disposable income. While growth in credit has been declining recently, that's a number that would have scared straight previous generations who wisely only bought items they could afford.

But it seems that's a financial principle lost on many Canadians.

And maybe that's why Flaherty was all smiles on Monday when he took credit for a slowdown in the housing market. While taking pride in a real-estate downturn is likely to raise a few eyebrows, the fact is, a cooling-off period is sorely needed, and Flaherty knows it.

As Kamloopsians can attest to, home prices have skyrocketed in the last decade due to a hot economy prior to 2008, long amortization periods for mortgages and super-low interest rates. But even with the downturn four years ago, debt still piled up.

With worries of a U.S.-style housing crash no doubt in the back many economists' minds, Flaherty took the big step of incrementally reducing the amortization period for insured mortgages from 35 years to 25 over the past year and a half. Flaherty credits this move for deterring cash-strapped Canadians from taking on difficult mortgages.

By taking fewer buyers off the market, however, housing activity has softened and is expected by one economist at CIBC to drop about 10 per cent on average over the next year.

Although a drop in house prices will dismay homeowners, a correction in real estate is preferable to a post-boom bust.

Flaherty said he was "all for a soft landing." For the long-term benefit of the economy - and their households - avoiding a crash is something all Canadians should be for as well.

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