The Department of Finance or better saying Mr. Flaherty has been trying to manage a “Soft Landing” in housing market by tightening the mortgage rules as he mentioned on CTV that they have tightened the rules of mortgage insurance four times since he started and they will do it again if they have to however in recent months Flaherty affirmed they had no plans for further mortgage rule action and this is obvious as none of their strategies worked.

His justification for enforcing all of the tightening qualification rules was to “moderate consumer debt levels” but as one of our industry experts questioned Mr. Flaherty by pointing nonsensical lending policies practiced by the same banks with their other consumer lending departments such as Credit Card Department or Auto Dealer Finance which do not seem to be monitored at all as it is completely opposing policies within the same lender organizations that are putting the consumers in a far worse financial position by allowing unqualified borrowers to finance cars, trucks and rec vehicles at insanely high monthly payments, foster negative equity positions with consolidation financing and with little or no income confirmation where the security on the loan is a ridiculously depreciating asset unlike the real estate financing which is almost always appreciating asset.

Why is Flaherty tightening the qualification rules on mortgage which is a Good Debt and disregarding Credit Card Debts and Vehicle Financing which are Bad Debts? Probably the credit card companies and the Auto Dealers in Canada carry such weight in Ottawa

 Unlikely to what Flaherty was expecting, Stephen Poloz said in an interview with CBC on Jan 7th that while he plans to keep interest rates on hold, there’s room to cut them if necessary.

 In terms of what it would take for the Bank of Canada to actually lower rates, it would likely need at least 2-3 more months of weak economic data (be it falling exports, business investment, inflation or employment).

 Fixed income traders believe that could happen. They’re now betting more heavily on a Rate Cut by October than a Rate Hike or no change combined. That reflects a key change in market-wide rate expectations over the last month.

 The Canadian dollar reached the weakest level since 2009 amid speculation slowing economic growth will push the Bank of Canada closer to considering lowering interest rates.

 The Bank of Canada held its key rate at 1% – where it has been since September 2010. In the commentary released with the rate announcement, the Bank has shifted its focus on the nature of the downside risks it considers. Topping the list now is low inflation created by intense retail competition and excess capacity in the economy.

 The consumer price index has been below the bank’s 2% target for about 20 months. Even if inflation does return to its 2% target, that alone isn’t enough reason for the Bank to raise the rate.

 Canada’s dollar tumbled 6.6 percent in 2013, its biggest drop in five years, as accelerating economic growth in the U.S. convinced the Federal Reserve to start slowing monetary stimulus even as the Bank of Canada warned of deflationary risks.

 Residential Real Estate in Canada rose 3.8% in 2013 compared to 3.1% in 2012 but it was driven mostly by 3 cities of Calgary, Vancouver and Toronto and if we take these off, it would be 1.2% which wass called “weakness” by National Bank which is expecting house price gain in 2014 will barely cover the inflation rate of 1.5%

 Several Canadian economists are also calling for a slowdown, rather than a meltdown in 2014.

 PIMCO’s Ed Devlin, the chief of Canadian portfolio management, believes the Canadian Real Estate decline will begin this year, though he stresses that a correction IS NOT “a bubble bursting in a disorderly manner.”

 One of three things would have to happen this year to spark a full-on bust, PIMCO’s Ed Devlin says:

 1. Interest rates would have to spike sharply, which simply isn’t in the cards. The Bank of Canada isn’t anywhere near a rate hike, and in fact has left the door open to a cut from its current policy rate of 1 per cent. “With real growth of about 2 per cent and a relatively subdued inflation forecast, we see no reason for interest rates to substantially rise in 2014.”

 2. Unemployment would have to spike. While the jobless rate isn’t projected to decline – rather, it’s expected to hover around the 7-per-cent mark – it’s not forecast to surge either. “Given this macroeconomic environment, it is also unlikely that the unemployment rate will spike to 8 per cent to 10 per cent (which, we estimate, would be needed to cause a disorderly housing correction).”

 3. Mortgage credit would have to be “disrupted” Also not in the cards. “The Canadian banking system continues to provide sufficient mortgage credit to keep the housing market financed.”

 Over all, PIMCO sees “modestly” higher mortgage rates, tighter mortgage rules, an ongoing “modest” economic rebound, and still-stretched property values.

 All of which means home prices will erode this year, and sales will slip, but that’s about as far as it goes.


*Click the following links to watch Bank of Canada governor’s interview with BNN on Jan 22, 2014


*Click on Monetary Policy Report-January 2014 to read it.

*Watch the Monetary Policy Report’s Press Conference on Jan 22, 2014


*Watch this video to learn about Monetary Policy and how changes in the Bank of Canada’s policy rate affect inflation