Newspaper article The Canadian Press

Tighter Mortgage Rules Not Enough in Hottest Real Estate Markets, OECD Says: OECD Urges Higher Interest Rates for Canada

Newspaper article The Canadian Press

Tighter Mortgage Rules Not Enough in Hottest Real Estate Markets, OECD Says: OECD Urges Higher Interest Rates for Canada

Article excerpt

OTTAWA - Moves by the federal government to tighten mortgage lending rules aren't doing enough to cool the housing market in the hottest regions in the country, the Organization for Economic Co-operation and Development said Tuesday.

OECD senior economist Peter Jarrett said while some areas will benefit from the changes, red-hot markets like Toronto are unaffected by the more restrictive rules.

"The risks are that people put too many eggs in one basket," Jarrett said in warning that low rates entice homebuyers to borrow more than they can sustain at higher rates.

The posted rate for a variable rate mortgage at Canada's big banks stands at prime plus 0.2 percentage points, or roughly 3.2 per cent.

"If rates go up something like we are suggesting then mortgage rates will be in more like the five per cent range," Jarrett said.

The OECD has suggested the Bank of Canada begin the raise interest rates this fall with a target of 2.25 per cent by the end of next year, up from one per cent where it has stood since September 2010.

"We feel that at least in the hottest real estate markets, particularly Toronto, that that would be a good signal that people should think twice about continuing to leverage up in order to buy more house than maybe they really need," Jarrett said. …

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