Jim Flaherty, the Minister of Finance, has announced new rules about government-insured mortgages that sensibly preserve an encouragement of home ownership but discourage excessive household debt.
On balance, there does not appear to be a housing asset-price bubble in Canada - but if there is, its existence depends on very low interest rates. These in turn depend on the Bank of Canada's overnight rate, which is a matter of public policy.
Mr. Flaherty's measures are looking ahead to the almost inevitable rise in interest rates to normal levels, some time in the next year and a half. At that point, many homeowners' mortgage payments will rise - which bears on the high ratio in Canada of household debt to household income, now close to 150 per cent, and the trend is upward. That is not as high as the level in the United States just before the financial crisis and the credit crunch, but approximately where Americans stood in 2004, which is ominous. Americans are now saving more; a role reversal seems to be taking place, raising a prospect of sunny, spendthrift Canadians and staid, stolid Americans.
Thus, the federal government's new rules are not aimed at making Canadians more hesitant about buying homes, by requiring larger down payments and shorter amortization periods, so as to go farther in the same direction as changes made in 2008. Though there will be tougher standards for houses and condominiums that are not owner-occupied, that will be no disincentive to people who simply want to own their own homes.
Instead, the current changes are directed at preventing excessive debt servicing, and leading banks to look more carefully at creditworthiness, by requiring them to look at proposed floating-rate mortgages as if they were fixed-rate, five-year mortgages.
This is far from an instance of gratuitous state interventionism. The major banks, fearing that their own mortgage lending could contribute to some harmful imbalances, evidently asked for some ground rules, thus limiting their own competition.
These reasonable changes are likely to restrain a buildup of consumer indebtedness, while not suddenly and jarringly applying brakes to the residential real-estate market.