Canada's top bankers are pushing the government to clamp down on the mortgage market to cool off the rise in home prices.
The heads of the country's six largest banks have privately told policy makers that they fear the wide-ranging economic fallout of a U.S. style binge-and-collapse in housing. To head off any chance of that happening, they are willing to accept tighter rules on mortgages that would slow the real estate market, even though it would mean forgoing some short-term profits from giving out ever bigger mortgages as home prices jump.
The chief executives of the Big Six made their point last November, when they met with Bank of Canada Governor Mark Carney. The country's top commercial bankers, who between them control more than three-quarters of the country's $940-billion mortgage market, said then that they wanted the government to look at far-reaching options, such as raising the minimum down payment to as much as 10 per cent and shortening the maximum amortization period to 30 years.
Mr. Carney didn't disagree, according to people familiar with the November talks.
"We're talking about being pre-emptive here," said a senior bank executive who spoke on condition of anonymity. "We're not in a bubble yet, or a credit crisis."
Changing the rules would be a relatively simple, sensible, proactive thing to do, said a top executive at a second major bank.
However, the real key is convincing Finance Minister Jim Flaherty.
The government, not the central bank, sets regulations on the length of amortizations and the size of down payments, and bankers realize that no politician will score points with voters by making it more difficult for Canadians to buy homes.
Mr. Flaherty publicly mused in December about acting if a bubble appeared "in the future," but with house prices rocketing higher in recent months, those pushing for change don't want him to wait.
The average resale price of a home in Canada was $337,410 in December, according to data from the Canadian Real Estate Association. That was 19 per cent higher than in December, 2008, and sales activity has also increased sharply.
With more signs each month that gains in house prices are accelerating, there are indications the government is considering a move.
In recent months, the Department of Finance has canvassed the mortgage industry for ideas on whether tighter mortgage rules are needed, and if so, what would be appropriate. Government officials have held a number of meetings and discussions on the topic in the last two months.
That has led to pushback from some in the mortgage industry who argue that stiffer amortization and down payment rules for all buyers could undermine the housing sector and hurt Canadians by causing the values of their homes to drop.
Some of those opponents of big changes have suggested to the government that it consider more targeted rule changes, if Ottawa feels that something needs to be done.
That could mean only tightening up the requirements for people with weak credit scores, or for people who are buying an investment property rather than a home to live in.
Mr. Flaherty will not say whether he will act. He reiterated his view there is "no clear evidence now of a housing bubble in Canada."
That view is shared by Canada Mortgage and Housing Corp., which said in an e-mailed statement that while some analysts and commentators say there's a house price bubble forming, "it is not clear that this perspective is supported by the facts."
Nevertheless, Mr. Flaherty is "actively monitoring the housing market and a variety of issues in that context," the minister said in an e-mailed response to questions.
"I have policy tools available to take action to counter negative trends. I have used some of them before and can use some or all of them again."
