Former BOC Governor David Dodge – “RE Fundamentals DO matter; These prices look pretty high by any conventional measure.”

There is now a large chorus of voices calling for tightening of Canada’s mortgage lending standards. And many respectable players have joined the group in recent weeks. We suspect that this is all in preparation for the actual move itself, so that it can seem to be inevitable (which it is) and seem to come from a consensus (thus there is less ability to lay blame). Note that David Dodge refers specifically to fundamentals like “the ratio of house prices to incomes and rents to house prices”,  factors that those bullish Vancouver RE have argued are irrelevant. -vreaa

From The Globe and Mail, 14 Feb 2010, ‘Dodge suggests Feds should cool house market’ –

“Canada should be bracing itself for the reality that house prices are more likely to go down than up in the next few years, says former Bank of Canada governor David Dodge. “These prices look pretty high by any conventional measure,” he said in an interview, citing measures such as the ratio of house prices to incomes and rents to house prices. “So, the likelihood of house prices falling a bit over the next few years is probably somewhat greater than that they would rise over the next few years.” “Whether there’s a bubble or not you can only see after the fact,” he added. But it wouldn’t take a bubble bursting to cause consumers pain. If your house price goes down 10 per cent and you’ve borrowed 95 per cent of its value, all of a sudden you’d be in hot water, Mr. Dodge noted.”

“Mr. Dodge said he has never been comfortable with the idea that people can buy homes with down-payments of as little as five per cent. Whether increasing it to 7.5 per cent or 10 per cent, he would be supportive of raising the minimum payment. He added that it would be possible for Canada Mortgage and Housing Corp. to rein in the market on its own, without an official move by government, by tightening the requirements for mortgage insurance. That’s what the Crown corporation used to do when he worked there in the “old days” (the 1970s), he said. For instance, it could tell banks that in order for a mortgage borrower to qualify for insurance, even if they’re just getting a three-year variable rate mortgage, they have to be evaluated to ensure that they could afford a five-year rate on a mortgage with a 25-year amortization. The Crown corporation is currently looking at such options, according to sources.”

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