Canadian Bankers Call on Government to Cool Home Pricesby
National Bank CEO says mortgage down payments should rise
Prices rose by 25% in Vancouver and 19% in Toronto in April
Canadian bankers are calling on the government to take further steps to cool surging housing markets in Toronto and Vancouver.
The heads of National Bank of Canada and Bank of Nova Scotia said mortgage down-payment requirements should be boosted to tame the market, joining the Organisation for Economic Cooperation and Development, which said Wednesday measures should be taken to reduce the risk to financial system from household debt and rising prices.
Down payments should return “over time” to 10 percent from 5 percent National Bank Chief Executive Officer Louis Vachon said.
“For the longest time, we had minimum 10 percent cash down and we had 25-year maximum amortization and that worked very well,” Vachon, 53, said Wednesday in a telephone interview. “I think over a period of time that’s where we need to gravitate back to.”
His comments follow those by Brian Porter, CEO of Scotiabank, who said Tuesday the country’s third-largest lender was easing back on mortgage lending because it was “concerned” about high prices in the two cities.
“We just took our foot off the gas the last couple quarters in terms of mortgage growth for the reasons I cited, in terms of Vancouver and Toronto,” Porter said in an interview with Bloomberg TV Canada’s Pamela Ritchie. Porter told the Globe and Mail newspaper Wednesday that the government could consider several measures including raising down payments, increasing the qualifying rate for five-year fixed mortgages and imposing a temporary luxury tax on foreign buyers.
The comments come as price rises in the two cities remain undaunted by moves by the government earlier this year. Foreign buyers, particularly in Vancouver, are adding to the upward pressure. The federal government in mid-February raised down-payment requirements to 10 percent for the portion of a house above C$500,000 ($382,000) while making it more costly for banks to fund lending.
Canadian Finance Minister Bill Morneau said in an interview two weeks ago that it’s too soon to know the impact of federal changes to mortgage rules aimed at cooling the Vancouver and Toronto markets.
“It’s been just about three months it’s been in place, so it’s early days,” Morneau said at the time. “We continue to be very focused on this file. Both Toronto and Vancouver continue to have house price escalations that force us to pay close attention."
The Canadian housing market is “stable on the whole” though the government is continuing to monitor Vancouver and Toronto, a spokeswoman for Morneau said Thursday. “We have allocated funding to Statistics Canada to gather data on the activity of foreign investors, and are prepared to take further action if required,” Annie Donolo said by e-mail.
Vancouver’s property market will drive British Columbia’s housing sales past its 2005 high to a record this year before prices cool next year, according to a forecast from the western province’s real estate board on Thursday. Home sales in the province will rise 12 percent and prices will jump 20 percent this year, the British Columbia Real Estate Association said.
Home sales jumped nationwide by 10 percent in April from a year earlier, the most activity for that month and the second-highest level on record, according to the Canadian Real Estate Association. In Vancouver, prices increased 25 percent to an average of C$844,800 from the year before and sales climbed 15 percent. The average price of a detached home in Toronto jumped 19 percent over the same time.
The OECD said as part of its global report Wednesday that “macro-prudential measures,” or regulations, should be “tightened further and targeted regionally to reduce financial-stability risks from high household debt and house prices.”
“Generally what we’ve seen from the regulators is a good approach,” Vachon said. “They’re targeting very specific markets and segments where they feel there’s a higher risk, and that is a far better approach than what we’ve seen in other countries.”