Finance Minister Jim Flaherty's recent move to tighten mortgage rules won rare praise from investment specialist Angus Watt.
Watt, a well-known investment advisor who provides market insight on TV and radio, addressed about 140 local business leaders at the city's economic development breakfast Tuesday morning at the St. Albert Inn. Watt said the changes, which include more stringent criteria for borrowing and refinancing mortgages, are designed to protect Canadian homebuyers from getting in over their heads.
"I'm not Mr. Flaherty's biggest fan after what he did to income trusts," Watt said, referencing controversial tax changes introduced in 2006, "but I do understand what he's doing here. I think what they're trying to do is be proactive to make sure that our volatility stays reasonable so we don't get hurt too much."
The mortgage changes take effect April 19 and require all borrowers to qualify for a five-year fixed-rate mortgage even if they want a lower-interest floating rate.
Canadians will also be limited to how much they can withdraw to refinance their mortgage, to a maximum of 90 per cent of a home's value, down from 95 per cent. Government-backed mortgage insurance must now require a minimum down payment of 20 per cent instead of the previous 15 on non-owner-occupied properties purchased for speculation.
Watt said the changes should protect consumers from overextending themselves, safeguarding the country from the mortgage crisis in the U.S. that complicated the downturn.
Watt said real estate prices are going to be under pressure because rent is on the downward trend and some 45 per cent of new homebuyers are renting. Commercially rent has been coming down since the fall, he said, and the overall situation is reminiscent of declining rents during the 1980s.
Watt said maintaining strong levels of cash flow will be imperative over the next few months if the economic recovery is to continue and that requires more access to credit.
"You can't have economic growth if you don't have credit growth."
Canada is in a fortunate position in that its financial system is the strongest in the world, he said.
Watt said Alberta has been insulated to some degree from the downturn due the sheer size of the province's stimulus program that helped push infrastructure spending into the $7-billion range. By comparison, stimulus spending in the U.S. is only trickling down into specific projects, he added.
Watt noted demand for oil is rebounding, though that doesn't necessarily mean a return to $100-a-barrel trading.
The investment expert did not pull out his crystal ball about when economic recovery will happen.
"We will get through this. We got through the 60s, 70s. We will get through this but we have to have the staying power."
City eyes development
Mayor Nolan Crouse used the second half of the business breakfast to highlight the city's efforts to improve the local economy.
Building activity in the industrial sector shows there's interest in locating in St. Albert, the mayor said, noting just 66 undeveloped non-residential lots exist in the city compared to 74 a year ago.
"This is why we believe we need to develop another non-residential area, another Campbell or another Riel Park," he said.
Economic development director Larry Horncastle said the city is continuing to spread the message that St. Albert is open for business, referencing his department's 20/20 vision of 20,000 local jobs and an 80-20 tax split by 2024. The city is making progress, he said, noting 12,000 already work here, up 500 since 2008.
