Glass-House Mortgages
A letter appears in today’s Globe and Mail in response to recent direction given by Minister Flaherty to private mortgage lenders over mortgage rates. The letter was written by Steve Pomeroy, one of Canada’s leading housing policy experts.
Here is the full text of the letter:
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Glass-house mortgages
Twice in recent weeks, the Minister of Finance has chastised Canada’s lenders for offering discounted mortgages, which he feels will overstimulate the precarious housing market (Flaherty Pushes Up Lending Rates – March 20).
The difference between Manulife’s discounted 2.89-per-cent rate and its previous rate of 3.09 per cent for a five-year mortgage amounts to $10 a month, on a $100,000 loan – a saving of $600 over five years. Meanwhile, the minister is spending $185-million this year to hand out tax credits worth $750 to to first-time buyers to “help people buy homes.†I’m not sure $750 really makes a difference!
So the minister should ask himself: Who is really overstimulating the housing market, and at what cost to taxpayers? Hint: People dwelling in glass houses should not throw stones.
Steve Pomeroy, Carleton University Centre for Urban Research and Education
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For an analysis of housing bubbles and debt, read The Bubble and Beyond by Michael Hudson
http://commonground.ca/2012/10/the-bubble-and-beyond/
Does this example suffer due to the 100,000 mortgage? Are not most mortgages at least twice that amount which would make Flaherty’s spending look a little better?
Nice point about Flaherty handing out $750, but the comparison is not valid. Houses don’t cost $100,000, the average house is $350,000. Using your number of $10, that would make it $35 which would be more than $750 after 2 years and $2100 after 5 years.
So while the $750 is also a bad idea, it is only a one-time payment. The slight change in interest rates is many times more important over the course of a mortgage.