CMHC: Reduction of Houshold Debt Creating a Balanced Real Estate Market

Senior officials have been repeating a message of restraint and responsibility when it comes to consumer debt, and apparently the consumers are listening.

New information from Canada Mortgage and Housing Commission (CMHC) suggests that accumulation of mortgage debt has slowed in this country, a likely consequence of stabilizing of the market in general.

According to CMHC, this slowing in consumer borrowing is not limited to mortgages, but says that there has been broad-based drop in consumer credit as well, including credit cards and lines of credit.

The concern has been that the continued environment of low interest rates would be too tempting for many, and debt accumulation would ramp up, leaving some vulnerable when rates do eventually rise.
Perhaps for some though, this low interest rate environment has become their new sense of borrowing reality, as rates have been low for sometime, and are expected to stay put for the near future, because of economic trouble brewing internationally.

Also, recent government regulations requiring that borrowers must qualify for a five-year term mortgage, which is set at a higher interest rate, even though their actual mortgage at a shorter term would be at a lower rate.  This essentially creates a built-in buffer against rate increases.

There is a feeling too, that this new sense of credit caution for consumers will play out well for the Canadian Real Estate market. The low interest rates will still incentify buyers, but this new awareness of the potential pitfalls of debt, as evidenced by dropping levels of debt over the last few months, suggest that debt loads, while high are showing a downward trend.

Essentially, this combination should bring balance to the market, heading off fears of an unsustainable spike in property prices.