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Winnipeg Free Press - PRINT EDITION
Flaherty retreats
Although everyone knows an ounce of prevention is a worth a pound of cure, it doesn't mean they always act as prudently as the adage advises. Take Greece, for example. Or Iceland, Ireland, Spain, Italy and the United States. Housing bubbles in each of those countries largely led to the ruin.
With that in mind, and with the very real prospect that Europe's currency crisis could further dampen prospects of economic recovery, Finance Minister Jim Flaherty last week took some steps to save some Canadians from the worst of what may come. Mr. Flaherty reduced to 25 years the length of a government-insured mortgage amortization, from 30 years, and announced million-dollar homes would no longer be insured by the Canada Mortgage and Housing Corp.
The announcement marks a retreat for Mr. Flaherty, who in the national prosperity of 2006 encouraged borrowing by raising amortization periods to 40 years. In a time of low interest rates, Canadians were encouraged to take debt against the equity in their homes, and acted in kind. As of late 2011, household debt levels moved to remarkable levels, 152 per cent of income on average. The global reality requires a retrenching to protect Canada's economy, should interest rates go north fast. New homebuyers in some cities will be saving a while longer, waiting for the market to cool. Better to start cutting some expectations than to risk a deep, entrenched recession for everyone.
Republished from the Winnipeg Free Press print edition June 25, 2012 A12
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