GOOD THINGS COME IN 3s

Can I quote you on that? Renovating a home requires an endless process of decisions. And the first one-choosing who will do the work-is often the most daunting.
By Ruth Myles, Calgary Herald
February 26, 2010


The most well-known adage in real estate is "Location, location, location." The second-most famous, which applies to renovation, also features a trio: "If you're going to have work done, get three estimates." Easier said than done. What exactly should be in those estimates? Is there a fee involved? Should floor plans and finishes be nailed down before approaching these fabled three companies? Often, the sheer scope of what's involved can overwhelm homeowners interested in a reno, relegating the dream project to the back burner for yet another year. But take a deep breath--even better, take three--and we'll take that first step together.

Ask family, friends, co-workers and neighbours for recommendations. (Basically, everyone you know.) And don't be afraid to knock on a stranger's door if you know that a house down the street had a new kitchen put in. Most people are only too happy to share their experiences. Check out Calgary-based publications, such as the Herald's Life at Home or New Homes sections, for renovation features and profiles of award-winning companies.

Once you've compiled a list of contenders, start calling around. Have footage, features and finances on hand. Many companies employ a multistage approach to estimates. The process starts off with a ballpark figure, then moves into more detailed accounting the further into the process you get. "From ballpark to budget to final, we're going to be plus or minus 10 percent. If 10 percent is going to make or break the project, then we shouldn't be in the running to begin with," says Steve Perlette, project manager at Litwiller Renovations and Custom Homes. (Hence, the wisdom of budgeting an extra 10 to 15 percent of the total cost of the renovation. There's nothing like scrambling to come up with an extra 15K.)

Ultimate Renovations also begins with an educated estimate; then, if both parties agree, they draw up a plan and create a spec document that details anything and everything in the job, from framing to the number of electrical outlets to the kitchen sink and its faucet. "Pay for a proper drawing and then, if you want, go shopping," says Danny Ritchie, president of Ultimate Renovations. "This way, you're comparing the same apples to the same apples."

His company charges two percent of the job cost for these plans, but that fee is waived if Ultimate gets the job.

In addition to checking references, Ritchie recommends that potential renovatees request a visit to the business's office, as well as current job sites, to get a real feel for the kind of work they do. "Sure, they may have been in business for 40 years, but under 40 different names." And, as different companies have different levels of spec, it's important to ask what their level of finish is. "You can do very inexpensive casings, carpet at two bucks a square foot, stuff like that, so there can be a fairly substantial spread in specifications," Perlette adds. Once homeowners have a range of quotes from three companies in hand, Perlette recommends choosing between the ones that are consistent in pricing, throwing out the high and the low. "You'll usually have two or three that are fairly realistic and have valuable numbers in them."

Of course, people need to look at more than just dollars and cents when it comes to choosing a renovator. The potential to establish a real connection should be the final dealmaker. (That has certainly proved true for me. Five people have keys to our home and the only one not related by blood is John, our handyman since we bought the house in 2006.) "Pick the people that you like, that you enjoy talking with, that you think you can communicate with because it's a long process," Perlette says. "It's very invasive. You have to live with these people for a very long time."

TAX TIME SHOULD MEAN MONEY IN YOUR POCKET

How your mortgage can lower your tax bill
You can deduct mortgage interest without getting in trouble with the taxman
James Pasternak, Financial Post
Published: Monday, February 22, 2010

When Toronto resident Celia Bernath files her annual income tax return, she includes a long list of deductions from her home-office income. After all, as a chartered accountant, she knows that travel, bank, postage, courier, utility and other charges and expenses are fair game for the micro-entrepreneur. But the item that sometimes has the most impact is deducting a proportion of her residential mortgage interest.

"The mortgage-interest deduction - like other deductions - is based on the square footage of my office divided by the total square footage of the house. Keeping track of all your household expenses is very important," says Ms. Bernath, who has about 15 corporate and 100 personal clients.

Ms. Bernath is one of the more than 700,000 home-based business owners who might be eligible to deduct a portion of their mortgage interest on their principal residence as an expense.

Generally speaking, in Canada, interest on residential mortgages is not tax deductible.

However, Ms. Bernath can do so because there is a direct link between the borrowed money and earning income.

"The long and short of it is if you want to be able to deduct interest on your mortgage, the loan has to be incurred for business purposes," says Yens Pederson, a partner with the Regina law firm of Balfour Moss LLP.

Canadians like to talk about mortgage-interest deductibility because the mortgage on a principal residence is the biggest debt Canadians have. They also like to talk about it because tax laws in the United States have provisions for residential mortgage-interest deductibility. Far fewer realize that Americans must pay a capital gains tax when they sell their home.

But beyond the fairly straightforward deductions of mortgage interest, the political machinations and bookkeeping shenanigans have made the mortgage-interest debate a colourful one in Canada.

Many say that the promise of mortgage-interest deductibility put the Conservatives in power and made Joe Clark prime minister in 1979. The Clark government was gone within nine months and the legislation was never enacted.

In 2003, the Conservative Party of Ontario announced that if re-elected it would pass legislation allowing homeowners to deduct $5,000 of their mortgage-interest payments from their taxable income, resulting in up to $500 in savings for homeowners. The party was defeated in the next provincial election.

Between these political attempts to liberalize mortgage-interest deductibility, the federal government moved to restrict tax avoidance strategies. In 1988, Parliament enacted the general anti-avoidance rule (GARR) to curb so-called "abusive" tax avoidance.

Under its most common allowances and interpretations, mortgage-interest deductions can still work as an effective strategy for reducing taxes. In addition to the case of a home business, one can deduct mortgage interest when investing in a residential rental property.

"If you are purchasing a property and you take a mortgage to purchase that property and then you rent out that property, then you are getting rental income from it," said Todd Trowbridge, a partner of Toronto-based accounting firm Trowbridge Professional Corp. "That interest would be deductible. There always has to be an earning income use of the funds."

Take the case of Toronto resident Howard Frank who invested just more than $400,000 in a 2,400-square-foot residential rental building with three units in May 2007. Mr. Frank took out a $300,000 mortgage, paying 5% interest. So in addition to a wide range of other deductible expenses such as property tax, maintenance, any utilities, insurance, administrative and legal fees, Mr. Frank deducts $15,000 in interest payments against the $33,600 in rental income.

A similar mortgage-interest deduction opportunity exists when one is renting out a room in one's principal residence or is earning income from a vacation property for all or part of the year. In both cases, the arrangement must be a legitimate commercial agreement.

"If you rented [the vacation property] out below value to family it would probably be offside. If you rented it out to third parties at a reasonable rate [the Canadian Revenue Agency might] look to see whether there was any commercial reality. At the very least you could deduct it off the rental income for the portion of time it was actually rented," says Mr. Trowbridge.

Some deduct mortgage interest through "the Smith manoeuvre" as promoted by Victoria, B.C.-based former financial strategist Fraser Smith. In its simplest terms, the homeowner pays down the mortgage as quickly as possible, creating small amounts of equity each month.

The equity is simultaneously filled with a line of credit to be used for investment purposes. The interest on the growing investment loan is deductible.

"Instead of giving it to the bank for making mortgage payments we can then invest it in ourselves and build our investment portfolio," says Mr. Smith, 71, who has sold 53,000 copies of his book Is Your Mortgage Tax Deductible?

"You deduct the interest on the investment loan. In the end, if you started with a $300,000 mortgage, you will end up with a $300,000 investment loan. So you'll be deducting the interest on the $300,000 for the rest of your life."

One way to deduct mortgage interest without actually paying the interest is through a reverse mortgage. The reverse mortgage allows a homeowner to tap into the equity of his or her home without having to pay interest or principal on the loan. The loan is satisfied on the death of the home owner or the selling of the home. Therefore, when the proceeds are invested, the homeowner can deduct interest charges against investment income, without actually paying the interest.

"CHIP Home Income Plan interest expenses may be used as a deduction to offset, in part or entirely, income tax liability generated by investments - as long as those investments were purchased with CHIP proceeds," says Arthur Krzycki, director or marketing and public relations at reverse mortgage specialist HomEquity Bank.

Mr. Krzycki says that if one invests a $100,000 reverse mortgage at current rates, the interest expense will be about $3,750. If one has an investment that earns a 3.75% return in the same time period, the two amounts will offset. So, the 3.75% investment income appears to be "tax free" for cashflow purposes, while the interest expense is added to the outstanding balance of the reverse mortgage.

An even more creative application of mortgage-interest deductibility came in the late 1980s. John Singleton, a partner in a law firm, tested current mortgage-interest deductibility rules by withdrawing $300,000 from his partnership capital account to purchase a house. Mr. Singleton then mortgaged the house by borrowing $298,750 from the bank and depositing the money into his partnership account, along with $1,250 of his own money.

When the time came to do his tax return, Mr. Singleton deducted $3,688 of interest on his 1988 tax return and $27,415 on his 1989 return. Mr. Singleton argued the borrowed funds, not the withdrawn funds, were used for investment purposes.

The deduction was originally challenged by Revenue Canada, as the taxman was then called, and after the case wound its way through the courts Mr. Singleton finally won the day.

"The court effectively looks at the direct use - the form of the transaction - and does not consider economic substance," says Daniel Sandler of Toronto-based law firm Couzin Taylor LLP. "So, by the same token, if a taxpayer cannot demonstrate that the direct use of the borrowed money was an income-earning purpose, the interest will not likely be deductible."

By January 2009, the Supreme Court of Canada sent a signal that it was open to creative applications of mortgage-interest deductibility, but not financial shenanigans. The case in question dates back to 1994, when the Lipsons, a husband-and-wife team, entered into an agreement to buy a home. Ms. Lipson borrowed $562,500 from a bank to buy shares from Mr. Lipson in a family investment company. The couple then obtained a mortgage from a bank for $562,500, using the funds to repay the share loan in full. In his 1994, 1995 and 1996 tax returns, Mr. Lipson deducted the interest on the mortgage loan and reported the taxable dividends on the shares as income where it was applicable.

"In essence, the majority of the court allowed the interest expense, but in the hands of Mrs. Lipson not Mr. Lipson. According to the majority, the interest-expense rule was not the rule that was abused in the case; it was the attribution rule," says Mr. Sandler.

Recently, a more liberal interpretation of mortgage-interest deductibility has emerged. In November, 2009, the Tax Court of Canada ruled in the case Henkels vs. The Queen, that expenses deducted from rental income in a private residence do not have to be directly tied to the square footage used by the tenant. The Henkels rented 700 square feet of space to a tenant, which is only 35% of the square footage of their home, but deducted 50% of the acceptable household expenses because the tenant had access to the entire house.

"This case reinforces the position that you could measure expense deductibility on a reasonable basis other than square footage," says Marc Weisman, a tax lawyer at the Toronto-based firm of Torkin Manes LLP.

As for Mrs. Bernath, she takes the more cautious approach, sticking with existing standards. "[The ruling] does allow you the opportunity to deduct more," she says. "It is good to be aggressive but being too aggressive gets you a nasty invitation from CRA."

"Yes," says Mrs. Bernath, "walk on the grey line [but] ensure that your expenses can be justified."

TIME TO SELL!

Remax warns not enough homes for buyersJulie Fortier, Canwest News Service
Published: Wednesday, February 24, 2010
OTTAWA - With new mortgage rules, a new harmonized sales tax in some provinces and the possibility of higher interest rates all set to kick in this summer, Canadian home buyers are on a tear and it is only going to get busier leading up to this summer, according to the Re/Max Market Trends Report 2010 released Wednesday.

The report, which examined real estate trends in 16 markets across the country, found that unusually strong activity in January -- traditionally one of the quietest months of the year -- has led to a sharp decline in active listings in 81% of markets surveyed. Too many buyers and not enough homes will probably be the main problem in coming months, according to the report.

Markets experiencing the tightest inventory levels include Toronto (-41 per cent), Kitchener-Waterloo (-33 per cent), Ottawa (-30 per cent), Victoria (-30 per cent) and Greater Vancouver (-27 per cent), which also had some of the highest year-over-year sales gains.

The highest year-over-year sales gains were reported in Greater Vancouver (152 per cent), Kelowna (121 per cent), Greater Toronto (87 per cent), Victoria (69 per cent), Hamilton-Burlington (58 per cent), London-St. Thomas (55 per cent) and Calgary (47 per cent), the report said.

Western Canada dominated the list of centres with the greatest increases in price, with Victoria home prices jumping 25.5 per cent in January compared with the same month a year before. Kelowna jumped 22 per cent and Greater Vancouver rose 19.5 per cent. St. John's saw an increase of 23 per cent and Toronto rose 19 per cent.

"While home ownership is still within reach in many major centres, levels are slipping. There is a growing sense, on both sides of the fence, that the time to act is now," Elton Ash, regional executive vice-president at Re/Max of Western Canada said in a release.

With the Harmonized Sales Tax, which will add more tax to home buying in two of the biggest and most squeezed markets - Ontario and B.C. - set to start July 1, and the Bank of Canada's record-low interest rates expected to rise around the same time, that pace of growth could slow dramatically in the second half of 2010. Last week, Finance Minister Jim Flaherty also said starting April 19 all borrowers must meet standards for a five-year fixed-rate mortgage, even if the buyer wants a variable rate mortgage, among other mortgage rule changes.

"There have never been so many motivating factors in play at once," Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada said in a release. "We're in for a heated spring market that will, in all probability, spill over into the summer months, as the window of opportunity draws to a close. The supply of homes listed for sale has been drastically reduced, housing values are once again on the upswing, and banks and governments are moving in unison toward stricter lending policies."


Active listings by market for January:

Market/ 2009/ 2010/ percentage change

St. John's/ 951/ 999/ 5%

Halifax-Dartmouth/ 3311/ 2695/ -19%

Hamilton-Burlington (xx)/ 1028/ 1261/ 17%

Ottawa/ 3988/ 2840/ -30%

Kitchener-Waterloo/ 1323/ 884/ -33%

London-St. Thomas/ 2538/ 2071/ -18%*

Greater Toronto/ 20450/ 12052/ -41%

Winnipeg/ 2222/ 1938/ -13%

Regina/ 456/ 381/ -16%

Saskatoon/ 1156/ 729/ -37%

Calgary/ 9225/ 6838/ -26% (xxx)

Edmonton/ 6573/ 4864/ -26%

Kelowna/ 4648/ 4120/ -11%

Victoria/ 2930/ 2061/ -30%

Greater Vancouver/ 13996/ 10218/ -27%

* - detached homes

xx - Freehold homes

xxx - Total MLS

Source: RE/MAX

FYI - BUYER BEWARE - CRA

Please release me
Withholding tax: Non-residents selling their Canadian home be warned
Helen Morris, National Post
Published: Saturday, February 20, 2010
Moving house can be pretty stressful, when you have to line up all the finances, paperwork, packing up, getting a moving truck and so on. However, if it is a move out of the country, there are still more things to consider.

In a standard Agreement of Purchase and Sale, a person selling their home in Canada must be able to declare that, for the purposes of Canadian taxation, they are a resident of Canada. If he cannot, he must provide the purchaser with a certificate of compliance from the Canada Revenue Agency (CRA). While most of us think that proceeds from the sale of a principle residence are not taxed, that doesn't hold for non-residents. Profit from the sale of a property may be subject to capital gains tax unless an exemption is obtained from the CRA.

(To determine whether you are a non-resident for income tax purposes, visit the CRA's website at cra-arc.gc.ca/tx/nnrsdnts/ndvdls/nnrs-eng.html.)"When a non-resident taxpayer sells taxable Canadian property -- which includes real estate-- they are required to file for a 116 Tax Certificate (Form T2062) with CRA within 10 days of the sale," says Tannis Dawson, a tax and financial planning expert with Investors Group.

The certificate can take two to three months to obtain; in the absence of the certificate, the buyer becomes liable for any tax owed by the non-resident seller.

"If the seller leaves and doesn't pay the tax, the government has decided it has the right to collect against the buyer," says Ray Leclair, real estate lawyer and vice-president at TitlePLUS. "So, to protect the buyer, it put in a provision that says if the seller is a non-resident, the buyer has the right to withhold up to 25% of the purchase price" until the seller produces a certificate of compliance from the CRA. That withheld amount is put in a trust account by the buyer's solicitor.

Caroline Blake, a British citizen who was a Canadian resident, moved to a new job in the U.K. and then sold her Toronto home. She says her solicitor first told her about the need to obtain this tax certificate a couple of weeks before closing. At the time the deal closed, the buyer of her Toronto property had the right to withhold 25% of the purchase price until Ms. Blake was able to provide the certificate. However, Ms. Blake's solicitor had assured her that even with the 25% withholding tax, there was enough equity in the home to cover closing costs and pay off the mortgage. Ms. Blake returned to Canada last month to finalize the sale of her home.

"The night before I flew back, the solicitor sent me an email, effectively saying, 'Whoops, sorry, I made a mistake. There isn't enough equity in the house. Could you please come with a $32,000 cheque,'" says Ms. Blake. "I sent her a very curt note saying, 'We've left the country --it's not as if we have a spare $32,000 in our Canadian bank accounts, so you'd better come up with an alternative.'"

Because Ms. Blake sold her home after she had left Canada, she was not allowed to sign the declaration saying she was a resident for tax purposes. But because she sold her house at a loss, she will not have any capital gains to be taxed. In order to close the sale, her real estate agent and the buyer's agent agreed to wait for their commissions until the compliance certificate is obtained and the 25% withholding tax is released. Advisors say this situation could have been avoided.

"They could have got this certificate before they started marketing, as soon as they knew they were selling the property," says Mr. Leclair. This would then have been given to the buyer so they would not be on the hook for any unpaid tax.

Ms. Dawson says the CRA will issue a certificate before a sale actually occurs, using the price you expect to get for the property. If there is tax payable, the seller pays the tax or provides security to the CRA that the tax will be paid ( just what this security could consist of, the CRA says "you or your representative should contact the Revenue Collections Division of the applicable Tax Services Office.")

The seller must file a tax return for the year the sale of the home took place. Any overpayment of the tax can be refunded. Other costs such as real estate fees, legal fees, and any other closing costs could be set off on your general taxes against any gain to reduce the tax you may have to pay.

For further details on selling property as a non-resident, including exemptions for a principal residence, see Canada Revenue Agency details at cra-arc.gc.ca/E/pub/tp/ic72-17r5/ic72-17r5-e. html

Photo By: Squirlaraptor

RESALE NUMBERS

Canadian resale housing market up 58% from year-ago levels
By Mario Toneguzzi
Calgary Herald
February 17, 2010

CALGARY - National activity in the resale housing market declined in January from the previous month but was up 58 per cent from year-ago levels, when national home sales activity reached the lowest level in a decade.

In releasing its January MLS data on Wednesday, the Canadian Real Estate Association said the average price of all homes sold through the MLS systems of Canadian real estate boards last month was $328,537, which was up 19.6 per cent from a year ago.

"In January 2009, the average residential sale price fell to the lowest level in almost three years," said the association which represents more than 96,000 realtors working through more than 100 real estate boards and associations.

"Year-over-year average price gains are being stretched by weakness one year ago, and are expected to shrink beginning next month."

In Calgary, MLS sales in January increased by 52.5 per cent from last year to 1,466 units for an average sale price of $397,518, up by 5.8 per cent. New listings fell by 6.7 per cent to 3,919 units and dollar volume jumped by 61.4 per cent to $582.8 million.

MLS sales in Alberta were up by 34.6 per cent from a year ago to 2,934 units. The average sale price increased by 6.4 per cent to $343,264. New listings dropped by 2.4 per cent to 8,162 units and the total dollar volume for the month of January was up by 43.2 per cent from a year ago to just over $1 billion.

Nationally, new listings were up by 3.4 per cent to 64,561 units and the total dollar volume increased by 89.3 per cent to $8.4 billion.

"January results suggest that the national resale housing market may be past the recent peak," said Gregory Klump, CREA's chief economist. "One car doesn't make a parade, so a few more months of results showing a cooling trend will be required before talk of a Canadian housing bubble begins to fade.

"It could take until the second half of the year before a cooling trend becomes evident, since home buying activity may continue to be accelerated in the first half of 2010 by expected interest rate increases and by the introductioni of the HST in Ontario and British Columbia on Canada Day."

TIK TOK TO RATE HIKE

Clock ticking for interest rate hikes
Garry Marr, Financial Post
Published: Friday, February 12, 2010

It's probably time to start the countdown on interest rates going up.

The Bank of Canada only pledged -- conditionally -- to keep its record-low lending rate until the end of the second quarter, so that leaves us with slightly more than four months before the housing market falls apart. At least that's what some national magazines and economists predict will happen when rates start to rise.

"Some people say they could go up in April, but I don't buy that," says Benjamin Tal, senior economist with CIBC World Markets and one of the more sane voices out there. He predicts a pullback in housing, but not the collapse we've seen in the United States.

So, what do you do in the face of this inevitable march of interest-rate hikes coming our way, likely at the Bank of Canada's first meeting in July?

"I think people will start locking in their rates very soon and that's already happening," says Mr. Tal, referring to the variable-rate crowd that has mortgages tied to prime. "The five-year [fixed] rate [mortgage] will be moving [up] well ahead of the bank rate in anticipation of an increase."

While locking in is extremely tempting in this market -- given a five-year mortgage is as low as 3.8% -- a floating-rate mortgage can be had for almost half that. Vince Gaetano, a vice-president of Monster Mortgage, said he's seeing variable rates for as low 30 points off prime, or 1.95%.

The problem for many Canadians who negotiated variable-rate mortgages in the past year, and still don't want to lock in, is they are stuck in contracts that have them paying a rate as much as 100 basis points (one percentage point) above prime. The reason they call it a five-year term is because that's the length of the contract.

But Mr. Gaetano says just break that mortgage. If you are in a variable-rate contract, the penalty is three payments. To go from a contract that is 100 basis points above prime to one that is 30 points below, could have you recoup your money in less than a year.

"There is a large amount of people refinancing to take advantage of these variable rates. We've seen a full-point comeback in the borrower's favour. We'll never see 1.95% ever again," says Mr. Gaetano.

One option for consumers who can't make up their minds is to apply to the bank for a new mortgage and have the financial institution hold the rate for as much 120 days.

"There will be a credit bureau check on your name and it could lower your credit score if you don't use money," says Mr. Gaetano, referring to the potential pitfalls of looking elsewhere for a new rate.

The reality is most consumers, once they have their mortgage, stay put and wait for renewal. The banks have a loyalty record that would make any industry drool. According to the Canadian Association of Accredited Mortgage Professionals, 93% of borrowers who renew on schedule stay with the same lender. Even among those who renew early, 81% stay with same financial institution.

As you consider where to go next with your mortgage, you should remain open to switching financial institutions if it saves you money. Sometimes there are costs, but the potential savings from a better rate can offset those costs.

Martin Beaudry, vice-president of ING Direct Canada, says his company will now hold your rate for 120 days by just applying online. You don't even need to fill out a full mortgage application. ING holds the rate on any term, or even the spread between a variable-rate and prime, which is now 20 basis points.

"There is no downside, but less than half of people take advantage of rate guarantees. People deal with renewals less than 30 days before the maturity date," says Mr. Beaudry.

Most banks will guarantee you a rate 90 days in advance of your mortgage coming due. Why wait until the last minute and why stay with same institution if you are not getting best rate going?

Dusty wallet Having trouble making ends meets because of property taxes? If you are a senior citizen, some jurisdictions will allow you to forgo the payments with the amount owing attached as a lien on the house. Make sure to check the interest rate they charge on that money owed or your heirs could be left with a lot less house -- if you care about that.

Photo by: Magda.Indigo

MORTGAGE RESTRICTIONS

Ottawa toughens mortgage rules
Paul Vieira, Financial Post
Published: Tuesday, February 16, 2010

OTTAWA -- Amid warnings about "reckless" housing speculation and overextended homebuyers, Finance Minister Jim Flaherty said Tuesday the federal government would make it tougher for people to get a mortgage.

He said at a Tuesday morning media conference that Ottawa would require all borrowers meet standards for a five-year fixed-rate mortgage, even if the buyer wants a variable rate mortgage. This measure would apply to all first-time buyers. Homeowners with insured mortgages are not affected, unless they choose at a later date to extend the amortization or look to refinance.

Other rule changes unveiled would affect people looking to refinance their mortgages -- lowering the maximum amount that can be withdrawn to 90% from 95% -- and place a 20% minimum down payment for government-backed mortgage insurance on non-owner-occupied properties. This would affect people looking to buy condo units or duplexes for rental income. Previously, only a 5% down payment was required.

But Mr. Flaherty said the changes, to take affect April 19, were not meant to stop a possible housing bubble, as some warned was upon us unless Ottawa was prepared to act.

"There's no clear evidence of a housing bubble, but we're taking proactive, prudent and cautious steps today to help prevent one," Mr. Flaherty said.

The existing home sale market has been on a tear, largely powered by historic low rates. Last April, the Bank of Canada cut its benchmark policy rate to 0.25% and pledged to keep it there until this July in order to stoke economic growth.

Eric Lascelles, chief economist at TD Securities, said the Canadian housing market should continue on a "turbo-charge" ride until the April 19 implementation date, "then cool sharply, and then resume a more modest rate of ascent. In theory, home prices should take a mild hit immediately, as the number of Canadians capable of financing a home will dip slightly. The market's expectation for rate hikes should be scaled back modestly as housing slows and the need to address it via monetary policy fades."

Mr. Lascelles added the move will likely add to Canada's already sterling reputation among currency and bond traders that the country "gets it" in terms of financial regulation.

Mr. Flaherty said the measures would "have some stabilizing effect on the housing market. And stability is a good thing."

He said the changes should still make housing affordable for first-time homebuyers. His main concern, he added, was that Canadians were at risk of overextending themselves as interest rates are at historic lows and are bound to climb.

"This will help Canadians prepare for higher interest rates. One must always guard against the temptation take on more financial risk simply because interest rates are lower."

Further, he said data emerged indicating people were engaging in "reckless speculation" by buying multiple condo units and not choosing to live in them. As a result, the Minister decided to move before the March 4 budget, when many people speculated changes might be introduced.

"We are encouraging people to build equity [in their home] over time, using home ownership as an effective way to save – rather than as a vehicle for quick cash," he said.

The changes "will discourage the kind of reckless real estate speculation that could drive prices to unsustainable levels which does not serve Canadian homebuyers."

The decision to adopt new mortgage rules emerged after nearly a week of dire warnings from prominent Canadians -- such as money manager Stephen Jarislowsky and former Bank of Canada governor David Dodge -- that the housing market was on the verge of possible trouble, as price increases were not sustainable and present mortgage rules were too lax.

Frank Techar, president of personal and commercial banking at Bank of Montreal, said the bank supports Ottawa's moves, although adding the lender does not believe the country faces a housing bubble.

"Given the prospect of higher interest rates and the recent run-up in housing prices in some markets across Canada, the measures announced today are prudent," Mr. Techar said in a statement.

He said the bank "for several months now" has been encouraging Canadians to stress test their financial budget using a mortgage payment based on a higher interest rate.

The Department of Finance in 2008 said Canada Mortgage and Housing Corp. would limit amortizations to 35 years and offer loan insurance on only 95% of the loan value. The government's housing agency had offered mortgage insurance on loans worth as much as 100% of the home value and amortization periods of as many as 40 years since 2006.

Homebuyers with a down payment of less than 20% of the property's value are required to obtain government-backed insurance in exchange for financing.

Canadian home prices and resales will grow to records this year, boosted by low interest rates, the Canadian Real Estate Association said in a report last week. Canadian new home prices rose 0.4% in December from November, the sixth straight gain, according to government figures.

As recently as two weeks ago Mr. Flaherty said there was "no substantial concern" about the emergence of a housing bubble after meeting with private-sector economists. And in an interview with the Financial Post in late December, he said there was "no evidence" of asset bubble in real estate.

In an address last month on behalf of a deputy governor, Bank of Canada advisor David Wolf dismissed talk of a housing bubble in Canada as "premature," warning that calls for higher interest rates now in an effort to temper real-estate markets would be akin to "dousing" the economic recovery with cold water.

However, the Bank of Canada said addressing housing excesses was best left in the hands of the Minister of Finance, through regulatory changes such as the ones announced Tuesday.