Canada, CMHC, mortgage, predictions, prices

CREA cuts forecasts for 2012 and 2013

53
53 Comments

There’s less than half a month left in the year, so that’s a good time to revise forecasts. The CREA has revised their 2012 national sales forecast from an increase of 1.9% to a drop of 0.5%. I’m guessing they’ve also revised their forecast for 2008, 2009, 2010 and 2011.

Looking ahead they expect 2013 to see a sales drop of 2%, but here in BC they forecast both sales and prices to drop just by 0.3 percent.

“Annual sales in 2012 reflect a stronger profile before recent mortgage rule changes followed by weaker activity following their implementation,” said Gregory Klump, CREA’s chief economist.

“By contrast, forecast sales in 2013 reflect an improvement from levels this summer in the immediate wake of mortgage rule changes. Even so, sales in most provinces next year are expected to remain down from levels posted before the most recent changes to mortgage regulations.”

Finance Minister Jim Flaherty moved in July to tighten mortgage rules for the fourth time in as many years in order to discourage Canadians from taking on too much debt. Among the changes, Flaherty made mortgage payments more expensive by dropping the maximum amortization period to 25 years.

FFffffff! Is anybody else getting sick of the miopic talk of ‘tougher’ mortgage rules? Here’s a great point from Ben Rabidoux about how to put these mortgage rule ‘changes’ and Flahertys ‘tightening’ into historical perspective:

Before looking more at the implications of a mortgage rule change like the one being proposed, it may be helpful to provide a brief overview of the mortgage changes that have occured over the past few years:

  • In 1999, the National Housing Act and the Canada Mortgage and Housing Corporation Act were modified allowing for the introduction of a 5% down payment….a far cry from the minimum 25% of a few years earlier.
  • In 2003 CMHC decided to remove the price ceilings limitations. That is, it would insure any mortgage regardless of the cost of the home.
  • In 2005 and 2006, CMHC began insuring 30, then 35 year amortization mortgages.
  • In 2007, CMHC allowed people to purchase a home with no down payment and ammortize it over 40 years. This was changed back to a 5% down payment requirement and a maximum amortization length of 35 years in 2008 once the idiocy of this policy was blatantly obvious.

Here’s the point: CMHC has been in existence for almost 65 years. For the first 60 of those years, they never insured mortgages with amortizations greater than 25 years. Only in the past 5 years has this experiment been started. The 35 year ams that are now on the chopping block have been around only since 2006. So let’s understand that any move to shorten amortization lengths is NOT some new, revolutionary move, but rather a move back towards norms that are both long-standing and fiscally prudent.

53 Comments
newest
oldest most voted
Inline Feedbacks
View all comments
Anonymous

Bob Rennie condemns Vancouver Art Gallery consultants’ response to his proposal

http://www.straight.com/arts/bob-rennie-condemns-vancouver-art-gallery-consultants-response-his-proposal

Not sure why Bobth didn’t propoth building the Gallery in Eath Van, the new Thaughnethy, where all the high rollers live.

0
0
Bailing in BC

Simple #14

I know that it’s not the most relivant point but EVERYONE MUST checkout Dad’s fur coat on the Bay advertisement on the next page. No wonder their RE went down- God was punishing them.

0
0
Told-you-so

@ Ben

Thanks so much for posting a link to that paper from the U of T- it was extremely well written. Congrats on the reference as well!

0
0
Yalie

Also, if prices are to drop, it will likely mean higher premiums for homeowners with deteriorating equity. Insurers have a funny way of getting their money back The thing that bothers me is that they haven’t increased premiums as prices increased (as far as I know, at least). Why wait until prices start to fall? Theoretically, premiums ought to reflect the risk inherent in the insurance. Since higher price/rent and price/income ratios mean higher default risk, I would assume premiums would have increased to reflect that risk. Any sane actuarial analysis would likely have concluded the same thing, especially in light of the US meltdown that just occurred. Given that they have not increased premiums, it’s obvious they are not acting in the best financial interest of the corporation or its liability holders (a.k.a. taxpayers). This to me is the… Read more »

0
0
HAM Solo

@ Patriotz The Genworth news just relates to being able to book some funds earmarked as a reserve to equity. However, the equity requirement on Genworth increased, so they can’t pay the money out. Technically speaking it is a “profit.” I think in the end, it won’t really matter to Genworth. Whether they have $2.5B or $2.6B of equity is kind of inconsequential compared to what their ultimate losses will be on their $260B of dodgy insurance in force. What the market ought to look at is the number of homes that Genworth MIC has insured which are below water in terms of market value being lower than the mortgage value. And the market should look at the difference in realizable value of the underwater homes and the gross amount of the mortgages. These numbers are not pretty and are… Read more »

0
0
jesse

vdtf47, yes that’s correct. The way CMHC got out of the last SNAFU was by raising premiums, the same any insurer would do when faced with large-scale and correlated defaults (think flood or hurricane insurance). I expect CMHC to behave no different.

0
0
Vote Down The Facts

jesse, I assume you’re referring to mortgages which weren’t high LTV at the point of origination but now require CMHC insurance at renewal time due to reduced equity?

0
0
jesse

Anon36, CMHC was bailed out in a few ways: – There were some funds set aside to handle distressed underwater homeowners, most notably in Alberta – CMHC increased its premiums for insurance to recoup some of the losses – It got through it in the end If Canadian housing turns out to be uncontrollable CMHC is going to be in a similar situation. The biggest issue for them is procuring bridge loans to handle a hypothetical wave of foreclosures and payouts. A harsher stress test requires a bailout of some tens of billions of dollars from the government. Milder cursory stress tests I’ve run show them remaining whole but needing low interest loans to get by. The hard truth is that CMHC isn’t really in “first loss” position, it’s homeowners. Also, if prices are to drop, it will likely mean… Read more »

0
0
Bag it and tag it

#42
STFU

0
0
Bag it and tag it

#41 UnagiDon
considering they’d only have to turn the heat on at times when the alternative is closing the bridge, I really don’t think the cost of the electricity would be of concern. Thanks for the Swedish bridge reference.

0
0
VHB
Total days	19
Days elapsed so far	14
Weekends / holidays	6
Days missing	0
Days remaining	5
7 Calendar Day Moving Average: Sales	58
7 Calendar Day Moving Average: Listings	63
SALES	
Sales so far	900
Projection for rest of month (using 7day MA)	291
Projected month end total	1191
NEW LISTINGS	
Listings so far	1151
Projection for rest of month (using 7day MA)	317
Projected month end total	1468
Sell-list so far	78.2%
Projected month-end sell-list	81.1%
MONTHS OF INVENTORY	
Inventory as of December 20, 2012	14749
Current MoI at this sales pace	12.38
0
0
Vote Down The Facts

Interesting how none of these bridge experts voiced their concerns before the first snowfall.

0
0
UnagiDon

#33:
A Swedish bridge has a cable heating system but it consumes gigawatts of power. Likely not cost-effective.

#37:
As it happens, some RE bears are also bridge experts.

0
0
Academic

Haven’t heard Tsur Sommerville lately? What are his thoughts on latest CREA news releases?

0
0
paulb

New Listings 47
Price Changes 28
Sold Listings 59
TI:14749

http://www.paulboenisch.com

0
0
patriotz

Genworth Benefits From Implementation of Government Guarantee Legislative Framework In Canada

I don’t know what all this is supposed to mean, but I do know that the share price of MIC took a jump today.

0
0
Anonymous

Re. #33

Why are you asking a bunch of RE bears such a question?

0
0
Anonymous

How about this CMHC related article from 1985. They were running a billion dollar accumulated deficit and received a $307 million bailout from Parliament in ’84. Insurance in force was only 38.8 billion.

http://news.google.com/newspapers?id=1nZkAAAAIBAJ&sjid=9n4NAAAAIBAJ&dq=cmhc&pg=1088%2C391137 (or search for “Housing Plans Play Havoc With Cmhc Insurance Fund”)

“Ideally, mortgage insurance would be a self-financing operation … All those aims haven’t been met since defaults on mortgages began soaring in 1978”

0
0
Anonymous

“Why don’t they wrap the Port Mann cables with an electric heat sheath that they could turn on when it snows?”

This is Vancouver; the bridge wasn’t designed to operate when warm.

0
0
HAM Solo

I agree that the 80’s archive is great.

I’m always interested in the start date of data series. In any type of instrument, price histories typically begin some period after a historic wash-out. “We haven’t seen a correction of more than x% in the modern era,” is usually supported by a price history that misses the previous crash. For some reason most residential home price data series in Canada don’t go back much before 2000.

To think that they were already running out of land back in 1980! Lo and behold, I guess they found some.

0
0
Bag it and tag it

Why don’t they wrap the Port Mann cables with an electric heat sheath that they could turn on when it snows?

0
0
patriotz

”There’s no one solution to Vancouver’s housing crisis,” (Senator Pat Carney) said.

And of course there turned out to be exactly one solution – lower prices.

0
0
patriotz

“It still does not make sense to demolish the old Port Mann if it has 30 years of life left.”

The reason for tearing down the old Port Mann is obvious – if left open it would take traffic away from the new Port Mann and reduce the toll revenue.

The old Port Mann can’t be tolled because it was built under the Trans-Canada Highway agreement back in the 60’s which forbids tolling.

If in fact this isn’t a P3 and the government has no commitment to tear it down, this is going to be a HUGE issue in the upcoming election.

0
0
UnagiDon

Port Mann is rather off-topic, but here’s the explanation from a friend who is an expert. —– The problem stemmed from insufficient right-of-way availability for a multi-pylon ten-lane deck. In project planning, twinning of the original bridge was envisaged. This posed an unnecessary constraint on the design. Another bidder dealt with it by designing a double-deck superstructure with cable planes at each side. This would have reduced but not eliminated the risk from falling ice. The double-deck superstructure was more costly to create (the transition structures at each end are expensive) and introduces other risks and operational problems. The design-build contractor is expected to produce the minimum-cost solution that meets the requirements. In this case the design-build contractor will correctly claim to have done that, and point out that ice accretion was not specifically addressed in the project requirements and… Read more »

0
0