Canada's Housing Bubble

Dec 24, 2010 Brian Lilley Parliamentary Bureau torontosun.com

Ottawa - As Canadians spend the final days before Christmas adding more charges to their credit cards, Finance Minister Jim Flaherty is concerned about the impact rising interest rates will have on Canadian family budgets in 2011.

In an exclusive year-end interview with QMI Agency, Flaherty said his main concern regarding the record level of debt Canadians are carrying is the level of mortgage debt and the rising number of home equity loans.

“Part of it is rational in the sense that people can carry more debt when interest rates are very low,” Flaherty said. “And no doubt people have bought more expensive houses than they need to have because they could afford to, because interest rates are low.

“Our concern is at the moment is as interest rates go up, which they inevitably will, we want people to be able to afford their obligations.”

Flaherty said that there has been a shift in how Canadians view their homes and that a return to the past might be a wise move.

“If we go back a generation, I think most of our parents viewed the house as something to be paid off. It was the first way that they built up equity,” Flaherty said. “I think it would be preferable if we did more of that and less of buying as much house as one can possibly afford based on how much the bank the will lend a person.”

Flaherty admits he is considering tightening mortgage rules in the future, although he won't hint whether that will mean higher down payment requirements or capping amortization at 25 years.

He said the impact on the economy will be considered before making any changes, including how changes would impact job creation.

As for credit cards, Flaherty supports Competition Commissioner Melanie Aitken as she seeks to push MasterCard and Visa to give retailers more options when it comes to commission rates.

The coming year promises to be a challenging one for Flaherty as he introduces a budget in February or March that will seek to rein in government spending and return Canada to balanced budgets.

“It requires discipline. If we maintain the discipline, we will balance in the medium term,” Flaherty said.

One thing Flaherty promises he won't do is balance the budget by slashing health and education transfers to the provinces the way the Jean Chretien government did in the 1990s.

“I lived through it at the provincial end,” he said.