Flaherty's underlying warning: "Run Forrest, Run"

In case you missed it, Finance Minister Jim Flaherty recently announced that he would threaten to "act again" should evidence of a real estate bubble become apparent.

A few things should be taken from his commentary:

1)  He implicity is suggesting that we are not in a real estate bubble.  In fact he denied it outright.

For the life of me, I have no idea what the empirical rule is for defining the presence of a real estate bubble. 

What I do know is that we've seen months of  multiple bidding wars,  frenzied line ups in sub-zero weather at various pre-sale condo events, rising Canadian home sales of 73% this year with 19% price gains.  All of this against the backdrop of higher unemployment and record levels of debt compared to disposable income. 

Okay, so maybe he's right...it's not a bubble.  Perhaps "Hindenburg" might be a little more appropriate.

2)  When the Minister refers to "act again" he is making reference to the Government's decision back in July 2008 (effective Oct 15, 2008) to mandate a minimum of 5 percent downpayment along with a maximum amortization period reduced to 35 years, for new government-backed mortgages.

While these are certainly two measures the Minister might choose to invoke, there are other possibilities which are also specific to the industry including raising minimum qualifying credit scores (i.e. FICO) and TDS (Total Debt Service) ratios.

But wait, here's the rub.

The Bank of Canada Governor Mark Carney has repeatedly referred to likelihood of rising interest rates sometime after June 2010. 

Furthermore, the HST bill is a slam dunk and will be coming into effect at the same time, July 1, 2010.

So I ask you this:

If you are the first time home buyer who in fact is relying on that tailwind 5/35 rule in order to leap into the world of home ownership, wouldn't you be a little more anxious to jump start the race knowing that the Minister has just warned you about the pending headwind likely coming your way.

"Now you wouldn't believe me if I told you, but I could run like the wind blows. From that day on, if I was ever going somewhere, I was running!' -- Forrest Gump