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Will the Feds increase the down payment requirements?

Last week's surprise announcement by the Bank of Canada that it will not raise interest rates any time soon, has created a few more serious concerns by financial analysts.


Canada sidestepped the worst of the financial crisis because it avoided the real estate excesses of its U.S. neighbour, and a post-recession housing boom helped it recover more quickly than its Group of Seven peers.


But the housing market began to cool last year after Prime Minister Stephen Harper’s Conservative government, worried about a potential property bubble, tightened mortgage rules


The central bank’s position comes amid signs home sales and prices are regaining momentum after cooling last year when Finance Minister Jim Flaherty clamped down on mortgage rules.


He says at the present time he has no intention of intervening by clamping down on borrowing.


Most analysts say he could take the steam out of the market by increasing the minimum requirement for a down payment to buy a new home. [Read this recent article from the Financial Post - accessed 2013-10-28.]


This idea was floated a few years ago -- to raise the minimum down payment from the current 5% to 7.5% or even 10%.  If implemented, this new requirement would be a 50% to 100% increase from the current levels.


What will this do to the over-heated Calgary real estate market?


Probably a spike in prices as first-time buyers scramble to beat the implementation deadline and create a panic buying situation in an already overly tight local market. This would be followed by lull in activity as the next group of first-time buyers save up their down payment and therefore prices will decline for several years. Of course, the worst case scenario would be a price implosion in real estate prices -- which was the effect that the government was trying to avoid in the first case.


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