While the reactions to the killing amortizations for 30 years were mixed, very few people were actually able to envisage its possible adverse effects when a decision in this regard was taken in July 2012. However, currently the Canadian Association of Accredited Mortgage Professionals or CAAMP chief economist Will Dunning has presented date that measures at least one risk associated with it - the possibility of losing jobs.
In his latest report submitted to officials in Ottawa, Dunning has concluded that an astonishing 190,000 employments would be lost during the period 2013 and 2015, as most amortizations would be reduced to 25 years from the previous 30 years. Precisely speaking, this denotes loss of 70,000 jobs in new construction market and another 120,000 jobs in the resale bazaar only in three years.
According to Dunning, about 20,000 employments are generated by the Canadian economy in one month and if estimates are right, the latest rules regarding amortization will do away with nearly 80 per cent of jobs created in a year.
In late February, CAAMP provided its finding to policy-makers, but it is believed that these results will not lead to any change in the rules soon, because the government desires to keep an eye on the consequences of the changes initiated in July for some more time. While the housing forecasters are eager to see the way the vital spring market progresses, apparently the feds would like the prices to fall. However, this is unlikely to happen.
CREA says that at present the mean home price in Canada is a little below 1.8 per cent compared to that in May 2011. In fact, the year-to-year home prices would be further elevated in February provided the average was not depressed by Vancouver.
Conversely, the volume of sales would have dropped 9 per cent between November 2012 and January 2013 and another 16 per cent in February. Dunning said they were pursuing 420,000 annualized home resales, which have dropped by 11 per cent following the July announcement causing an adverse impact.
The decline in sales has clear fiscal repercussions, especially vis-à-vis employment. One out of five jobs in Canada is related to the housing sector and presently nothing can possibly restore these jobs. Therefore, the current debate is over 'which is more evil' - the mass job losses owing to tightening of mortgage rules or the home prices which may possibly escalate and remain unsteady leading to an economic crisis.
CAAMP has suggested that the first-time home buyers to be allowed to lengthen their amortization to 30 years provided the mortgagee considers them eligible for 25-year amortizations, as this will lessen some of the adverse economic impacts. CAAMP says that already the government has initiated similar polices by agreeing to people taking variable mortgages involving higher risks provided they are eligible for an elevated posted rate for five years.