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Among major economies, Canada was able to weather the global economic fallout better than the rest. Economic experts attribute this resiliency of the Canadian economy to its well-regulated and conservative monetary policies. However, there is still a lot of work to be done as threats still persist in various sectors of the economy. In a recent report by the Canadian Real Estate Association, the average prices of home properties posted an increase of 20% for the previous year. The uptrend in prices is a direct result of lower interest rate and comprehensive government incentives. In most segments of real estate markets, home properties are overvalued as shown by the higher price-to-rent ratios, which are about 20% greater than their long-term averages.

Financial analysts and economic experts hasten to add that the condition does not present the possibility of another bubble burst. However, Canadian real estate markets will be better off if they let some air out. This could be the general intention of the federal government when it instituted several policy changes such as:

• Implementation of new rules that effectively made it more expensive to buy investment properties

• Increase of homeowners equity and down payment requirement

• Reduction of amount that can be borrowed based on the current equity in their homes

Just recently, the federal government was actively encouraging people to increase their stakes in home properties. Several incentives were provided in order to encourage more people to enter the real estate markets. These included awarding of tax credits to first-time homeowners and adjustment in the amount that can be borrowed from their existing retirement plans.

Amid the recent reversal in the overall condition of real estate markets, the federal government is now taking a different tack and suppressing the general tendency of homeowners to use their home to generate additional mortgage. The general condition is no longer conducive for those stakeholders who are intending to purchase three or four condo units based solely on speculation.

Once these policy changes are implemented, homebuyers will have to raise the required 20% equity instead of the current 5% minimum amount that is required for home properties. On the other hand, homeowners who are intending to refinance their current mortgages will now be limited to a maximum of 90% of their equity in their home property, instead of the usual 95%.

Interest rates should have been adjusted, though such action is being held in abeyance for the time being since the Bank of Canada is sticking to its earlier commitment of maintaining the overnight rate at its current level of 0.25%. Bank officials consider upward adjustment to be counterproductive at this stage where the economy has not yet fully recovered from the most recent financial debacle.

These economic measures are sufficient in order to manage the current situation in real estate markets. Since the economy is not yet fully recovered, these policy changes are more focused, and economic managers are squared off to make further adjustments if need be. The general objective is to temper the drive of households to increase their exposure instead of puncturing the perceived emerging real estate bubble.

The main concern of economic planners and policy makers is to prevent homeowners to take on more debt than they can handle in the event that interest rates are adjusted in the upward direction. This set of counter-measures will also require those who are applying for short-term mortgages at the current rate of interest to comply with a higher income level requirement. This requirement is specifically applied to 5-year fixed-rate mortgages.