Moody's worries Canada's tightening is too late

Moody's warns on mortgage debt

The federal government’s attempt to cool the housing market “may have come too late” to prevent a harsh landing for residential real estate, Moody’s Investors Service is warning.

Given that the numbers are roughly equivalent to the U.S. before the crash there, I'd say that's a safe call.

“The government’s moves may have come too late, owing to the buildup in consumer debt that has already occurred,” Moody’s said in a research note Monday. “Canadian consumers’ reliance on low interest rates to support high debt loads remains a risk.”

But, but, it's all about the monthly payment, right?

“Previous rule changes had some effect in countering the stimulus provided by historically low interest rates but failed to stop Canadian household leverage from increasing,” Moody’s analysts William Burn and Andriy Stepanyants said in the report.

“Low interest rates are actually creating a domestic imbalance in terms of excessive household debt,” Toronto-Dominion Bank chief economist Craig Alexander said. “Ultimately you’re going to have to ween households off the drug of low interest rates.”

Debt is a drug. Cheap debt is meth.

For all the whining in the mortgage industry about the proposed changes, you'd think the rules were getting tighter than normal, rather than still being set at a paltry emergency interest rates and minimum down payments. Goes to show how recency makes people forget history.