What bubble?

1400 sq ft, 3 bdrm 1 bath   $1,780,000

As you might expect, F’s big news is being downplayed by a lot of people with their butts hanging out.

Some economists argued Tuesday’s announcement means the Bank of Canada won’t be raising interest rates, since Flaherty’s move will cool housing on its own. But it’s the opposite. Ottawa knows rate pressure is building globally and the prime could be 2% higher (that’s double) in a year. That was a major motivation.

Some mortgage brokers argued this is all a piffle, since 5% downs remain. Making purchasers qualify for 5-year, fixed-rate loans will have no effect, they sniffed. But at least one prominent banker let slip that the new rules could cause 25% of all new mortgage applications to be rejected – more than enough to tilt any market.

Some MSM writers claim it’s all meaningless, since most home loans are already long and fixed-rate. But that’s irrelevant. The market is now being driven by first-timers, the vast majority of whom are 5/35ers – the crux of the problem.

And others argue many lenders already require variable-rate borrowers to qualify for higher fixed terms, so where’s the news? Actually, while five-year money today can be had as cheaply as 3.6%, you can pretty much guarantee that will be in the 5% range by Christmas and 7% within 24 months.

But here’s the thing. If the F-bomb ends up having no effect in slowing down the outta control real estate locomotive, as the apologists claim, we’re in for an even greater train wreck, likely later in 2010. By failing to raising the minimum down for a state-insured mortgage to 10% from 5%, Ottawa wimped out. By refusing to drop the maximum insurable amortization to 30 years from 35, the feds allow people without money to buy houses, then pay off nothing each month.

All this could end up with a worse ending.

And if you need any more proof of that, check out the latest Vanier Institute of the Family report. It’s withering.

• The average house used to cost 3.7 times income. Now, nationally, it’s 5 times (in Toronto, 6 times and Vancouver 9 times)

• The average household debt is at a record $96,000.

• The debt-to-income ratio of families is an historic 145%.

• Total debt soared 5.7% in a single year.

• Mortgage debt exploded 6% in 2009.

• And last year family income increased by 0%.

What this means, in simplest terms, is that we’re all borrowing from the future to finance today. And nobody has more cookie dust on them than young homebuyers. By their actions of extreme buying, encouraged by Ottawa’s emergency interest rates, and enabled by CMHC’s reckless insurance, we have allowed houses to eat family income and excrete debt.

So today looked good on nobody. The minister showed what a coward he is, how out of touch he’s become from the middle class. The realtors, brokers, lenders and bankers demonstrated how desperate and greedy they are for this orgy of debt and indulgence to continue. The MSM showed they so little understood the issues that they interviewed real estate agents for reaction. And a government which insisted there’s no bubble looked like an ass announcing a series of measures to prick it.

What happens next depends on what people think will happen. Real estate being the most emotional of assets. And those emotions are about to run high.

But if you’re searching for a market top, look in the rearview. Then get out of the way.