Tag Archives | Housing Bubble

Bigger down payments not an option for healthy housing market!

February 16, 2010

The Honorable James M. Flaherty
Minister of Finance
Department of Finance Canada
140 O’Connor Street
Ottawa, ON K1A 0G5
fAX: (613) 943-0938, E-mail:  jflaherty@fin.gc.ca

Dear Minister Flaherty,

RE: Discussions regarding raising minimum down payment requirements for home buyers

Given your initial interview with CTV and rumors currently swirling around Ottawa regarding potentially raising the down payment requirements for homebuyers and the resulting discussion this idea has brought about in real estate circles, among economists and in the media, we are writing to urge you to reconsider such potential measures.

We understand the government of Canada is concerned about the possible destructive impacts of a hot housing market. These concerns are not without some justification. However, as REALTORS® working on the front lines of this business, we believe raising the down payment requirements for homebuyers could not only have a disastrous effect on those Canadians looking to buy their first home, but also on the health of the entire housing market.

We are not economists. We are not claiming to be. However, given that we operate a real estate business in which first time homebuyers make up a significant percentage of our clientele, our very survival as a business depends on our sharp understanding of the needs of first time homebuyers, as well as their overall contribution to a healthy and prosperous Canadian housing market.

To use a crude analogy, if the housing market were a pyramid, first time homebuyers would make up the foundation on which the entire market is based. Placing unreasonable barriers to entry on those who would otherwise help to provide the market with a solid base will cause a destructive chain reaction that will reverberate throughout a significant portion of the entire economy. To illustrate this point, if first time homebuyers are prevented from entering the market, demand for starter homes will plummet. Current owners of starter homes looking to sell their houses in order to accommodate a growing family will certainly experience greater challenges in finding buyers for their current homes. As such, they may not be able to buy those homes for their growing families, as they have significantly less buyers to sell their current ones to. In this way, the entire housing market will suffer; first time homebuyers will merely be the first to feel the effects.

From our own experience with our clients, we know how difficult it is for them to raise enough money for their down payments, as they are often saving while also paying rent to reside in their current dwellings. We warn that any increase in minimum down payment requirements would bar more than just a few potential buyers from entering the market. As such, we worry that the government is underestimating just how destructive any increases in minimum down payment requirements could be for first time homebuyers and by extension, the entire housing market. Furthermore, creating unnecessary barriers to entry for first time homebuyers would naturally affect any business dependent on a healthy housing market. Not only would our business feel the effects, but contractors we work with, from renovators to builders to painters would take a hit, as would home staging companies and retailers that sell goods required to sustain a home. These include durable goods like furniture and appliances.

We believe it is also worth mentioning, that measures to raise minimum down payments could have large destructive effects while failing to provide an economic upside.

We would like to emphasize that there is still a great deal of diverging opinion among economists as to whether we need to fear a potential housing bubble at all, let alone whether raising minimum down payment requirements would help avoid one. In an interview with The Globe and Mail, Benjamin Tal with CIBC World Markets expressed his worry that such measures could result in the government overshooting its goal. Tal communicated his belief that housing prices will moderate as new housing starts help to increase the supply of homes, thus stabilizing the market. New Canada Mortgage and Housing Corporation figures on housing starts seem to support Tal’s argument, given that the country saw 174,500 new housing starts in December (seasonally adjusted annual rate), beating analyst expectations, and 186,300 units in January. On the heels of the December data, Canadian Real Estate Association chief economist Gregory Klump told the Canadian Press he believes such fresh infusions of supply will stabilize the market, particularly in the latter half of 2010 and that the current surging market represents a natural part of the real estate cycle, not a housing bubble. On the same day, Bank of Canada official David Wolf, delivering an address on behalf of deputy governor Timothy Lane, warned that talk of a potential housing bubble is premature.

Given our frontline industry experience, coupled with what Canadian economists are telling us, we believe that any potential decision to raise minimum down payments would be, at best, a perverse ‘solution’ to a temporary concern. As such, we strongly advise against adopting such measures. We welcome any further discussion on this matter from you, as well as from the general Canadian public as we strongly believe there are other options open to the Government.


Elke Babiuk, REALTOR®,
Maxwell Realty, Maxwell Canyon Creek
Member, Calgary Real Estate Board,
Alberta Real Estate Association
Canadian Real Estate Association

 Selling Calgary Group     Elke Babiuk
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Housing Bubble Talk Premature

So, if federal Finance Minister Jim Flaherty is set to potentially raise down payment requirements as a way to avoid a possible housing bubble, thereby making it harder for you to buy your first home, wouldn’t you expect he’d be reasonably sure that a bubble would actually be on the way?

Interestingly enough, he’s not. Nobody is.

Canadian Real Estate Association Chief Economist Gregory Klump recently stated very bluntly to 660 AM Radio News business reporter James Munroe that a housing bubble is not in store for Canada, even after receiving data showing December was the strongest month on record for Canadian real estate.

Klump also pointed out that a new supply of homes will help to stabilize currently surging prices due to high demand for housing. Figures from the Canada Mortgage and Housing Corporation suggest new supply is on its way into the market. That new supply is no small number. We’re talking about 174,500 new units nationally in December alone. That figure beat analyst estimates by about 10,000 units. Klump argues this is just more evidence of a normal stage in the housing cycle, not the bubble Minister Flaherty fears. So, why is Minister Flaherty still toying with the idea of barring so many potential first time homebuyers from entering the market by buying their first home?

Klump isn’t the only dissenting voice out there either. Benjamin Tal with CIBC World Markets has also told The Globe and Mail that he too, believes new housing units coming into the market will help stabilize prices. He also warned that the government could overshoot its goal, saying: “You do not kill a fly with a hammer.”

Interestingly enough, there’s even dissension from the Bank of Canada itself! Bank of Canada official David Wolf recently delivered an address in Edmonton on behalf of deputy governor Timothy Lane. In the address, he warned that any talk of a housing bubble at this point was “premature.”

We hope Minister Flaherty is listening to the counsel he’s getting and does away with this idea, before it affects the dreams of so many first time homebuyers and our valued clients. We’ll have even more on this topic in the next little while so keep checking!

Elke Babiuk and Michelle Larcher
MaxWell Canyon Creek Realtors

 Selling Calgary Group     Elke Babiuk
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Housing Bubble in Canada – we don’t think so!

It may soon be a lot harder to buy your first home, if federal Finance Minister Jim Flaherty has anything to say about it.

In an interview with CTV just before the Christmas holidays, Minister Flaherty mentioned that he’s considering raising minimum down payment requirements to “more than they are now.” He also said he was looking at decreasing amortization periods on mortgages to “something less.” In case we haven’t made ourselves clear enough, he wasn’t exactly forthcoming with specific numbers.

The Finance Minister is concerned about a possible real estate bubble burst. He worries that too many people could get into the market when interest rates are low, only to have the Bank of Canada raise interest rates later on this year, leaving many unable to pay their mortgages.

We understand why he’s worried. We can lay a great deal of blame for the 2009 financial crisis on a housing bubble in the United States. But there’s little evidence to suggest that could happen this year in Canada.

There’s a lot of experts who disagree with Minister Flaherty (more on that in later blog posts), but we want to devote this entry to explain why we think it’s a bad idea.

A significant number of our valued clients are first-time homebuyers who we want to support in purchasing their first home – a place where you can build your dreams and grow your family.  Getting in is not easy for most. We know many of our clients can take a while to save up enough money for their down payment, usually because they have to pay rent to stay in their current place while they build up what they need to move into that special first home. Raising down payment requirements only puts more strain on potential first time homebuyers, who are so crucial for a healthy housing market.  Here’s why:

First time homebuyers form the basis of a pyramid of sorts for the housing market. Eventually those who were first time homebuyers a few years ago need a bigger place to comfortably grow their family. Who are they going to sell to if those looking to buy their first home can’t get into the market anymore? Your guess is as good as ours. In this way, the effects of limiting first time homebuyers are felt all the way to the top of the market.

But it doesn’t stop there. Many businesses we work with, as well as our own, would take a serious hit as well. We work with many contractors, from those who renovate your kitchens to those who paint your house, who would feel the effects of Minister Flaherty’s proposed measures. Retailers would feel the pinch too, as fewer people would be buying the furniture and appliances that go into that first house.

We’ve got a lot more information to share with you on this topic, so bookmark us! In the meantime, we encourage you to write a letter to your MP if you want to speak out against these measures. Until next time!

Elke Babiuk
MaxWell Canyon Creek
[now with CIR Realty]

 Selling Calgary Group     Elke Babiuk
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