Category Archives: Budget

How resilient is CMHC to a US style housing crash?

Kabloona points out this article asking yet again how this country would fare in a US style housing market crash, but particularly how the CMHC would fare:

Canada Mortgage and Housing Corp., which protects financial institutions in the case of consumer default and is 100 per cent backed by Ottawa, said in a release Wednesday that it looked at anti-globalization, earthquakes, a steep oil price fall and a U.S.-style housing correction to see how its insurance portfolio would hold up. It did not look at a combination of any of those scenarios.

The verdict is a U.S.-style correction would be its worst scenario for its insurance program with a cumulative loss of $217 million from 2017 to 2022 which would come on top of a need for the Crown corporation to suspend its dividends to Ottawa. CMHC paid Ottawa a special dividend of $4 billion in June because of excess capital and issued a $240 million dividend in August.

Read the full article here.

Mortgage carrying costs to rise 8% next year

Scotiabank is forecasting a big bump in mortgage carrying costs:

New buyers can expect home ownership to become even less affordable next year as mortgage costs rise, while current owners will be largely insulated from higher rates.

Add it all up, and the bank forecasts that Canada’s housing market seems to have “peaked” and is expected to cool down from its recent breathtaking pace.

Read the full article here.

OMG OSFI!

YVR pointed out this article by Rob Mclister about the OSFI B-20 bombshell:

The new OSFI’s stress test rules will make 20% of the mortgage market not qualify or they will have to reduce their mortgage by 18% to qualify. That is before recent and future mortgage rate increases are factored in.

Roughly 80% of new big bank lending in the richly valued Toronto and Vancouver markets is low-ratio mortgage lending

OSFI’s stress test, as proposed, would slash buying power for prime buyers by roughly 18%

For non-prime borrowers, qualifying rates would immediately rocket into the 6% to 7% range

Read the full article here.

Good time to be sitting on a $800k down payment

With interest rates going up there’s good news and bad news for housing. It can make it tough for people who are stretched thin financially, but might be good news for people waiting to buy:

The people who will benefit are those who have a nest egg and have been waiting for the right time to buy a home, he said.

“The real winner here is somebody sitting on a $800,000 down payment who says I’m going to wait for prices to fall.”

Overall, interest rates will continue to rise, added Brander. He predicts mortgage-lending rates could increase by several percentage points in the coming years. But as long as those increases are incremental, like Wednesday’s announcement, the economy will be able to absorb it, he said.

Seems like it’s always a good time to be sitting on an $800k down payment, but maybe we’re just optimists. Read the full article here.

Owe Canada! Canadians love debt

Owe Canada posted this in the weekends thread and it’s got some very interesting numbers:

Canadian annual gdp at the present time is $2.06 trillion.

In the 1 year period from the end of December, 2015 to the end of December, 2016 (calendar year 2016) the Canadian economy grew by 1.4% – ie: the size of the economy grew by $28.9 billion.

In this same 1 year time frame the total debt outstanding in Canada grew by $309 billion. For each $1.00 the economy grew in this 1 year period the total debt outstanding increased by $10.69.

Looking at just the total debt outstanding of domestic non-financial sectors in Canada. In the 1 year period from the end of December, 2015 to the end of December, 2016 the total debt outstanding of domestic non-financial sectors increased by $215 billion. For each $1.00 the economy grew in this 1 year period the total debt outstanding of domestic non-financial sectors increased by $7.43.

At the end of December, 2016 the total debt outstanding in Canada was 3.5 times greater than our annual gdp, and looking at just the total debt outstanding of domestic non-financial sectors, that was 2.5 times greater than our annual gdp.

Here’s more from Owe Canada.