Dec 2009 21

Will Government Put the Brakes On?

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Canadian real estate market keeps the aggressive pace for several months and federal government becomes worried. Finance minister Jim Flaherty considers a counter action to stop the potential bubble.

As Flaherty said for CTV News: "If we see further evidence that there is excessive demand in the housing market or that there's an indication that people are taking on obligations that they will not be able to handle in the future when interest rates rise, then we will take some action,"

What kind of action is possible? I f you think about higher interest rate, you are probably wrong. Indeed, extremely low interest rate is the key engine of this rapid growth; however it influences also other sectors of Canadian economy, which are still in the realms of recession. And higher interest rate would probably hold them there for longer.

Flaherty spoke about different kind of action, which directly affects the real estate market – new mortgage regulations. "The likely action we will take is to increase the size of the down payment from 5 per cent to a higher number, reduce the amortization -- bring it down from 35 years to something less," he said. This should encourage people to buy properties more responsibly.

Well, I am not sure if the recent growth is really so dangerous, but I know such sudden decisions may force potential buyers into even more hasty decisions...  

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