You’re driving and you see road construction ahead and you know you should slow down to 50 and if you’re anything like me you take your foot off the gas and let your speed decelerate slowly, feeling no need to immediately apply the brakes. Now change that scenario slightly and let’s say there is a cop car at the beginning of the construction zone with its lights on; do you still just decelerate slowly or do you make an effort to apply your brakes and ensure you are going exactly 50 kms by the time you reach the construction zone?
Right now, the Canadian Mortgage Market is the construction zone and potential new mortgage guidelines would be like the cop car waiting with its lights on. Like a construction site is a sign of growth and repair, Canada’s economy is still fragile but it is growing. Studies show most Canadians could handle a decline in property value and not be too adversely affected by it though trouble could come when you combine declining property values with rising interest rates and higher unemployment. There is no cause for concern yet as bond yields which affect interest rates are still low and employment is high which means interest rates are likely going to stay low for the time being. Just like a big storm temporarily halts work on a construction site, our mortgage market is not impervious to external factors that could hamper our economic growth. Our regulators are keeping their eyes on foreign economies, specifically watching for signs of serious trouble in the European market that could greatly impact our Canadian market. It is also the responsibility of the individual to proceed with caution, just like we watch our speed as we drive by the cop car, we should be watching our debt levels and ensure we are responsible drivers of our own financial future.
OSFI, The Office of the Superintendent of Financial Institutions was recently given additional responsibilities including the overseeing of key lending policies. I think of OSFI as the cop car and even though they have their lights on, we’re not sure if it’s a radar speed trap. Or if they have pulled someone over, are they also waiting for someone else to zoom through so they have an excuse to pull them over too? Or maybe just having the cop car there with lights flashing provides enough incentive for drivers to proceed carefully through the construction zone. All we can hope for is that OSFI uses their newly granted influence for the good of all by focusing on ensuring affordability and suitability for Canadian borrowers; while avoiding adverse effects on those with good repayment habits.
Bottom line is you are in control of your financial “vehicle” and it is up to you how you want to drive it regardless of how many cop cars are out there watching. If you are a responsible driver and your financing vehicle is in good shape, you will get through the construction zone just fine.