Canadian Mortgage Trends has an interesting interview with Pierre Serre, the Vice President of Insurance Products and Business Development at CMHC. The upshot of the interview is that the CMHC has plenty of dough in reserve and poses no threat to the Canadian taxpayer in the event of a housing market crash. There are some other interesting figures in that interview: currently 9% of Canadian mortgage holders have less than 10% equity in their home. They also remark on default rates during previous rate increase periods, which seems topical since Carney is planning on raising the benchmark rate by 500% in 2010 (from a rock bottom .25% to a still low 1.5%)
CMT: Can you tell us, what were default rates in past periods of large rate increases (like 1980-81 or 88-89)?
Pierre: According to the Canadian Bankers Association, the highest rate of mortgage arrears—which is, greater than 90 days–occurred in 1982 and in 1983. The rates were 0.96% and 1.02% respectively, compared to today’s rate of 0.43%.
CMT: Mortgage arrears are currently around 0.4% in Canada—exceptionally low, especially for a recession. I assume CMHC’s risk analysts have calculated what would happen in a worst-case scenario of mass defaults?
Pierre: CMHC internal analysis supports CMHC being able to cope with a variety of economic scenarios, including some rather severe ones.
By ‘rather severe ones’ I assume he means a US-style cliff diving real estate market. Speaking of cliff-diving and on a whole different topic, check out this graph of US commercial real estate.
Thanks to Don for the links!