News about mortgage rules in Canada are surfacing again. With the average price of a home reaching $337K in December 2009 (a 19% increase from the same period a year ago), the big banks urged the Canadian government to tighten lending requirements by shortening amortization rates to 30 years and bumping up minimum the down payment on a home purchase to 10%.
Unfortunately there seems to be some confusion as Canadian Finance Minister Jim Flaherty thinks there is "no clear evidence now of a housing bubble in Canada." I'm not sure what planet he lives on. I applaud the bank's willingness to let go of short term profits in order to avoid issues similar to the US. People can debate whether the Canadian housing market is in a bubble or not, but what is certain is that a housing correction will take place.
It doesn't take a rocket scientist to see that things are getting out of hand. Just tune into HGTV and watch some of the prices being thrown around when they are covering housing in the Toronto area. This is not sustainable. It wasn't sustainable in the US, and it won't be in Canada either. Regardless of whether the government takes action or not, the severity of any correction will be unknown. Now how does this affect the Ten Grand Chicago portfolio? Time to possibly exit EWC (iShares Canada) after carrying a 30% total return since I picked it up over a year ago. I will be checking into the open Monday and may exit. I'm not sticking around to see what happens. Time to look elsewhere.
Disclosure: Author holds a long position in EWC