800 Billion dollar housing problem

Think home prices are a touch high in Canada?

Concerned about falling house prices and the spin-off effects on the larger economy?

If you’re looking for an outline of the way the federally run Canadian Mortgage and Housing Corporation (CMHC) took part in a reckless race to bottom against US competition and put the Canadian economy at risk you could do a lot worse than this Globe and Mail article .

Created in 1946 to help returning Second World War veterans find homes, CMHC had morphed over the years into a multibillion-dollar goliath that fuels bank lending and housing demand by insuring riskier mortgages, especially those in which the buyer has only a small down payment. Without that insurance, many more people would be shut out of the real estate market, unable to get a mortgage from a chartered bank.

It has also been a lucrative venture for the government. But that business was now being eroded as a result of the arrival of aggressive U.S. insurers into Canada.

The American companies were willing to do things CMHC had never done. Some were even backing “zero-down” mortgages in which the buyer borrowed every dollar needed to pay for the home.

Fortunately as fiscally responsible Canadians, we didn’t follow the US example and start backing ‘zero-down’ mortgages.. Oh wait, actually we did.  In fact the CMHC was a little late in its turn around, only starting to pull back the changes after it was obvious the US economy was tanking due to the bursting of a housing bubble.

So how much did the CMHC influence the rise of Canadian house prices?  That’s the source of much debate, but as the G&M puts it:

What is beyond dispute is that CMHC’s rules have enabled a change in behaviour among home buyers like Ashleigh Egerton. When she and her boyfriend bought a townhouse in Brampton, Ont., in May, 2008, they could have made a 5 per cent down payment – but opted to put nothing down instead.

“Instead of putting that money into the house, we felt like we’d be off to a better start if we had some money to furnish the house,” Ms. Egerton says. “I wasn’t under the impression that I would be paying this house off. This wasn’t the house that we would be staying in forever, it was just about getting into the market, getting a place.”

But the zero-down mortgages created a new problem in the housing market: Buyers who weren’t building any equity in their properties, since the payments were primarily covering the interest in the early stages of the loan. When Ms. Egerton moved out about two years later after splitting up with her boyfriend, the pair still didn’t have any equity in the home.

I’m going to stop myself now, because I could just keep quoting from this article.  If you have any questions about the role the CMHC has played in the Canadian housing bubble do yourself a favour and read the full article.

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We all know about this CMHC boondoogle, talk about flogging a dead horse.

For the last 8yrs the G&M flip flops on it’s housing position and when the final result is tallied be sure to expect their editorial “genius’s” to say; see, we were right, simply because they were all over the map.

The real issue is ‘what are we going to do about the 800 billion dollar housing problem?’

Most definitely? Nothing.


Shiller speaks about latest housing numbers…hesistant to call a bottom.


Can't wait

>What is beyond dispute is that CMHC’s rules have enabled a change in behaviour among home buyers like Ashleigh Egerton. When she and her boyfriend bought a townhouse in Brampton, Ont., in May, 2008, they could have made a 5 per cent down payment – but opted to put nothing down instead.

Some COCs gonna get hurt, real bad!

This is the form of government intervention that I hate the most. It’s one thing for a government to provide stuff that nobody else will (free healthcare, welfare, an army, etc), but when a private entity sees a way to make money, wtf would the government try to compete with it? They could have just let the private sector offer those dumbass insurances and keep insuring 25 years/low debt-to-income mortgages and stuff like that. So what if 10 years down the road you’re not insuring a single mortgage? I’d say Good, mission accomplished. Now stick to compiling statistics. To me… Read more »
Canada’s last truly private mortgage insurer, Mortgage Insurance Corporation of Canada, went bankrupt decades ago. The ostensibly private mortgage insurers in the US have become wards of the state. Private capital is still not willing to insure high ratio mortgages in the US – where prices are 1/2 those in Canada and beginning to go up. This is the free market speaking. It’s speaking in the loudest possible way that OUR RE PRICES ARE MUCH MUCH TOO HIGH. Without the government continuing to hold the bag on mortgages RE prices in Canada would drop below those in the US. Flaherty… Read more »
painted turtle

Re: G and M article: 800 billion dollar housing problem.
Can someone tell us in one or two lines what it deals with? I haven’t paid my G and M subscription yet.


WSJ: Canada’s Bank Regulator Targets “Operational Risk” in 2013

Dec 27, 2012
Canada’s top financial watchdog intends to press the big banks next year on how well prepared they are to deal with so-called “operational risk”–one of the most difficult risks to protect against.

“We think it’s becoming a much bigger risk, and it’s related to the fact that banks everywhere are in a cost-cutting mode, so they’re trying to do more with less, and that does increase risk,” Julie Dickson, the head of the Office of the Superintendent of Financial Institutions, told Canada Real Time in an interview earlier in December.

Vancouver real estate prices are depressiating, and will continue to do so for the foreseeable future. The extra $50 billion the Feds are sinking into the market will merely allow overextended developers to dump some of their overpriced inventory. This majority of this money will probably end up in the Toronto condo market— just as the finance minister hopes. It is sad, but the government has implicitly admitted that providing marginal lenders with tax payer guarantees is the only way to keep this ponzi scheme alive. But, it’s a discrace that they are willing to facilitate the financial slaughter of… Read more »
Many Franks
For anyone wondering how the additional $50B for Genworth differs from a similar lift on CMHC, there is a post at Canadian Mortgage Trends detailing the differences: The government backs CMHC insured mortgages 100% if CMHC fails. AIG and Genworth, however, receive only 90% federal backing. To some people, that 10% difference may not seem like much, but in today’s gun-shy credit market, it’s the world. There’s more detail following that. A few parts of the article had me rolling my eyes — Rob actually hoped that the fed would raise private insurer backing from 90% to 100% — though… Read more »

@Many Franks

Good summary. And yes that 10% does make a world of difference.

Will This increase help Vancouver RE? Doubtful. From what I understand Genworth Canada not interested in BC at this time. Too much risk. Their main focus is, and has always been Toronto. Of course, Toronto is the next house of cards to fall (though most def was not as pumped up as Van. Still won’t be pretty though.


I don’t see much change in the new assessment, as it is based on the market of last July. Few sales and little price changes then in Van west.

Bull! Bull! Bull!

>And I really doubt Genworth is dumb enough to turn this around and declare open season on Vancouver lending.

Thanks Many Franks. And we all know how accurate predictions made on this site are, don’t we 😀


Thanks Many Franks. And we all know how accurate predictions made on this site are, don’t we

Think you can do better? In that case, why don’t we all make our 2013 predictions, and see who’s in fact more accurate?

I’ll start: I predict that between Dec 2012 and Dec 2013, the Teranet index will be down 15% for Vancouver.

What’s your forecast?


Video link to Ben’s presentation in Vancouver for the LePoidevin Group:


Yellow Helicopter

@14 – gokou3 –
Thanks very much for this! I was one of the many that wanted to attend and couldn’t.

ALL – I really appreciate your contributions to this site. I don’t always feel like I have much to offer / add,so I am a seldom commenter, but I have learned so much from you and thank you for not only helping me keep sane in the face of this crazy RE market, but also make more informed financial decisions. I think 2013 will be ‘our’ year. Thanks again.

Bull! Bull! Bull!

Ben Rabidoux is the bear de jour. Let’s see if we can come up with a list of other bears that have since have passed out of favour because they were wrong for too long.

I’ll start – David Rosenberg.

Vote Down The Facts


I think Teranet will be -3%, and inventory will peak at 21250.

No Noise

@#6 Painted Turtle

The G&M article says that the $800B mortgage risk problem Canada (CMHC) has is “too big to fail”. Therefore taxpayers will be on the hook for it if RE prices continue to drop – hence taxes will rise (including property taxes I would assume)- hence RE will further decrease as will overall economy – vicious cycle. Good time to be a renter..


“our year“

hahaha, welcome to another year in the miserable bear club.

No Noise

@19 Anonymous

Miserable? Bears have never been happier these past 6 months I would think. And the future looks bright too!


Re. #8

“Vancouver real estate prices are depressiating, and will continue to do so for the foreseeable future.”

Totally agree! Vancouver prices are depressing and will remain so for those unwilling or unable to pay for the privilege of living in the Best Place on Earth!

Or did you mean to say “depreciating”? Either way, prices will remain depressing for you guys. Happy New Year Bears! It will be 2009 all over again!


New Listings 41
Price Changes 34
Sold Listings 87



@No Noise #18
>Good time to be a renter
I would say, bad time to be a Canadian taxpayer.


there was a sale today in Point Grey . Almost 300K below assessed. Almost broke the 1.0M mark . . Sold fo $1,030 . . It was a demographic that is always motivated – – An Estate sale.

Just saying that these are out there and these will always set the new price to the extent there are no buyers.


…unwilling or unable to pay for the privilege of living in the Best Place on Earth!…

‘Privilege’, right! ‘Super privileged’ must mean you get to live under water, instead of just constantly wet like those that are ‘privileged’.

Used to be only Toronto folks had to put sun screen on their calves.