CMHC: Crazy Money Housing Cheerleaders?

Chincy shared this link to a post on the CMHC over at the America Canada blog. It’s one of the clearest looks at factors driving the Canadian housing market that I’ve seen in a long time and it’s well worth reading in it entirety. Here’s an excerpt:

CMHC indicates in its plan that it will insure $813 billion via a combination of mortgage insurance and mortgage-backed securities (MBS) by the end of 2009. Looking at 2008 and 2007, one can clearly see that CMHC has drastically exeeded their planned figures. 812 billion is more than likely a minimum target. At this rate the Government of Canada will be insuring over $1 trillion in mortgages and loans or 77% of GDP by the end of 2010. That is double what Fannie Mae and Freddie Mac insured on a per capita basis or the equivalent of the entire mortgage debt of the United States on a per capita basis.

Even at the zenith of the US housing bubble, prices peaked around $250,000 US while incomes were around $47,000 US. In Canada, incomes are $44,000 and prices are now at $342,000. If I have evidenced to you at this point how risky our lending has been, how are we so different than America? One might even say that we are much worse.

Read the whole post and see what you think about his conclusion. It’s a convincing argument that the CMHC has strayed far from their original mandate of making homes affordable for Canadians and engaged in activity that has the opposite effect, encouraging speculation and overlending and insuring it with your tax dollars.

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Jenny the troll
Jenny the troll
11 years ago

Slippery slimy, cagey, “fork tongue” Rob Says:

“I’m just speculating, because after all, once you tell someone to stop banging the “all buyers are mental midgets” drum you really have to try to throw something new out.”

Rob, the bear argument why this is a bubble and it will end in a crash, is considerably more substantive than your argument, that this is the best real estate anywhere.

What a feeble attempt at creating a straw man argument on behalf of the bears and then, argue it to inject the fear of the probability that high unsustainable prices in Vancouver are here permanently.

We will give you an A for effort, but seriously, you are embarrassing yourself, the heavy weight regular posters aren’t legitimizing your BS with their thoughtful replies, they are just toying with you fool.

Jen the troll

Franco
Franco
11 years ago

Bears are in desperate panic so they launch an infamous propaganda here to dampen the ever upward Van RE. However,they all fail miserably. If Van RE was so bad as those losers claimed why every single house listed in past few months in van sold in a flash. Keep distorting the reality will lead bears into further humiliation. Those who can get into the market,be quick because further delay will damage your wallet . Therefore,ignore those buzzing losers and invest for your retirement. It is the golden opportunity for house shopping now after Olympic game those wealthy mainland Chinese will swallow every pc of Van RE,and left those losers in perceptual resentment.

patriotzed
patriotzed
11 years ago

oneangryslav:

This reminds me of Albert Brooks’ Lost in America, from 1985.

Trivia time: Albert Brooks' real name is Albert Einstein. No kidding. The other one had a sense of humour too:

"Two things are infinite: the universe and human stupidity; and I'm not sure about the the universe"

Never truer than here and now.

cashisking
cashisking
11 years ago

Just try and get info from CMHC … you can't … that should tell you enough!

oneangryslav
oneangryslav
11 years ago

Drachen: "The risk comes when the CMHC is covering amounts measured in multiples of the GNP. It’s a little like your wife or husband playing poker with your life’s savings because it’s a “sure thing”. It is not a sure thing and it is a huge amount of money for taxpayers to simply “cover” as you so blithely put it." This reminds me of Albert Brooks' Lost in America, from 1985. For those who haven't seen it, it's about a middle-aged yuppie couple, who after striving valiantly to obtain financial security, quit their jobs and set out in a Winnebago to see the "US and A" (obligatory Borat reference). Their dreams and financial security are completely shattered one night when, as the husband is sleeping, the wife goes down to the casino in their Vegas hotel and promptly loses their… Read more »

Drachen
Drachen
11 years ago

stagnate: "cmhc is a cash cow for the federal government, there is no underwriting risk because any liabilities can either be monetized or at worst covered by tax payers directly."

The risk comes when the CMHC is covering amounts measured in multiples of the GNP. It's a little like your wife or husband playing poker with your life's savings because it's a "sure thing". It is not a sure thing and it is a huge amount of money for taxpayers to simply "cover" as you so blithely put it.

stagnate
stagnate
11 years ago

fannie and freddie were set up as actual companies, the cmhc is directly linked to the central bank. chmc losses would be monetized with ease, financial markets might take a bit of a poke at our dollar but i don't think the government is too worried about that.

patriotzed
patriotzed
11 years ago

stagnate:

more than anything the cmhc is a cash cow for the federal government

Until there's a bust. Fannie and Freddie south of the border used to pay nice dividends to their shareholders. Then what happened?

there is no underwriting risk because any liabilities can either be monetized or at worst covered by tax payers directly.

Nonsense, a loss by CMHC is a hit to the Crown balance sheet and thus to the net worth of every Canadian.

stagnate
stagnate
11 years ago

i've said it here before, i'll say it again-the cmhc is a division/front of the Bank of Canada. there are negatives and positives resulting from that, mostly negatives. we get socialized real estate markets. more than anything the cmhc is a cash cow for the federal government, there is no underwriting risk because any liabilities can either be monetized or at worst covered by tax payers directly.

jesse
11 years ago

Anonymous 32: No it was that there was no housing built during the war and there was widespread unemployment as the economy tried to revert itself back to full peacetime capacity. A stopgap was required until the economy could be ramped up to full speed and wages could support a residential construction demand. Many of the returning soldiers built the housing backlog when no private builders saw a business case. That was in the day when CMHC's primary focus was to actually build housing.

Predictably Irration
Predictably Irration
11 years ago

I think it's interesting that some of you believe that there is a big conspiracy or that there is an elite group getting in your way, manipulating the markets.. etc. Someone should contact Art Bell about the CMHC!

Anonymous
Anonymous
11 years ago

patriotzed Says:

July 22nd, 2009 at 12:12 am

Anonymous:

It (CMHC) was an idiotic mandate in the first place.

"There was a genuine need for more housing at the end of WWII."

=======================

Nobody can get by your universal wisdom, patriotzed, can they?

And so we really needed CMHC because Canada's housing stock was destroyed by bombing during the war, right? Or is it because dead soldiers buried in Normandy require more housing?

patriotzed
patriotzed
11 years ago

Anonymous:

So what do you suggest they replace it with and how long do you think it will take? Should they choose manufacturing and take forty years to build and re-build what was lost over the past four decades?

Let the markets decide where capital goes. Right now huge amounts of capital are flowing into residential RE in Canada, an asset with grossly inferior yield and excess supply. Why? Because the government is guaranteeing financing. It's Soviet-style central planning presided over by our "Conservative" government. Meanwhile businesses cannot get financing to create or maintain jobs because the banks would rather make mortgages which are virtually risk-free for them.

Put an end to this nonsense and let the markets decide which assets to allocate capital to and at what rate, based on their yield and risk.

Deliverator
Deliverator
11 years ago

I’m writing a letter to my MLA, the Finance Minister and the Finance Critic.

…er, make that "MP".

Deliverator
Deliverator
11 years ago

"Securitization has accounted for 90.5% of all growth in total Canadian mortgage credit outstanding since 2007. Its market has grown from 100 billion in 2006, to 130 billion in 2007, to 260 billion by Q1 of 2009 (UPDATE: $295 billion by mid-June 2009). CHMC plans to expand securitization of debt to 370 billion by the end of 2009 as per the conservative government request."

It's official. They are insane. The Canadian MBS market has more than doubled since 2007 in full view of what was happening to the US and the UK. I'm writing a letter to my MLA, the Finance Minister and the Finance Critic.

Drachen
Drachen
11 years ago

I get the feeling that the CMHC will turn into a greater money sink than the Iraq War.

YLTNboomerang
YLTNboomerang
11 years ago

1130 Story of rising vacancy in office space in the sun too:

http://www.vancouversun.com/business/fp/Vancouver

Just goes to show that the only business in Vancouver is Real Estate speculation

Pani
Pani
11 years ago

Regarding: So true this would decrease leverage and therefore volatility in market cycles. It would also simplify economic shocks allowing BOC to worry just about the economy – ie their mandate. Really the benefits are endless…

==

Assuming that there aren't any unintended consequences of this kind of intervention: was the CHMC intending to create a bubble or were they simply trying to achieve another policy goal but ended up inflating one by accident?

Also why the reference to predatory lending? Does every borrower need to be hand-held and coddled when they make the biggest purchase of their lives? It's too easy to say borrowers over-extended themselves after-the-fact.

See: Predatory Lending and the Subprime Mortgage Market

NO -LYMPICS
NO -LYMPICS
11 years ago

I think Drachen's post # 24 summed it up well. Follow the money. The Feds can't do too much to prime the ecomomy insofar as traditional external revenue sources.., as an exporting nation, it can't force exports to other countries. What's left ? How can they fool others that all is well ? The RE Market …..a prime indicator used to determine the health of the economy !!! The "opiate to the masses" is what can be manipulated internally…such as the dream of home ownership. Manipulate policies,etc. promote certain stats and bury others. They are in so deep there is no going back now. If cornered, simply repeat " we never saw this coming ", perhaps a line that will go down in infamy. Did ya hear bankrupt California, to help stem the red ink, is lifting its moratorium on… Read more »

Drachen
Drachen
11 years ago

Cons want to win next election.

+ Cons will lose if they preside over a housing crash.

= Cons will do anything that's plausibly deniable to prop up the market.

Simple math.

buff_butler
buff_butler
11 years ago

1&4. I don't agree with this simply based on providing liquidity in the time of crisis however the overall model should be looked at. Especially for there to be recourse to predatory lending. 2. Restrict deposit-taking institutions to lending 80% of the purchase price… A great idea. I would make it vary where it would be inversely proportional to inflation – therefore with low rates the down payment required would be higher preventing bubbling and in high inflation times the down payment would be lower allowing people to find basic shelter during an inflation cycle. This would also reduce the number of people forced out of homes during an inflationary run. 5. Since we have a market oligopoly with the big 5 banks there should be something in place to incentivise CEOs to focus on profit in the long term… Read more »

Anonymous
Anonymous
11 years ago

patriotzed:

I don't disagree that the CMHC could be replaced with a better system.

But I was asking a more general question about what Ottawa should replace housing with in terms of the economy. You wrote:

"Canada has more living space per capita than ever before, and the highest real housing prices ever. Both evidence that there is too much capital and labour going into housing, not too little. Ottawa should turn off the tap. The longer it waits, the greater the mess will be to clean up."

So what do you suggest they replace it with and how long do you think it will take? Should they choose manufacturing and take forty years to build and re-build what was lost over the past four decades? Is Vancouver ready to switch gears?

patriotzed
patriotzed
11 years ago

Anonymous: If Ottawa turns off the tap for housing, what do you suggest they replace it with and within what timeframe? What politician would take the risk? How about a little… drum roll… free enterprise, properly regulated? 1. Do away with mortgage insurance. It is a scam, along with bond insurance in general. You can only insure against uncorrelated risks like car accidents, deaths, etc. Since debt defaults are systemic, i.e. are correlated with each other, you can no more insure against them than against an asteroid impact. This is the same reason why no private insurer would ever underwrite employment insurance. All mortgage insurance in Canada is government backed because no private insurer will assume the full risk (and yes that includes Genworth, etc.). 2. Restrict deposit-taking institutions to lending 80% of the purchase price, or a ceiling based… Read more »

Why
Why
11 years ago

Cosmo from Concord pacific sold in 48 hours, why?