Category Archives: Canada

Heloc LTV going to 65%?

Canadian Mortgage Trends is saying that changes to HELOC loan to value (LTV) limits are a done deal.

If so this means the maximum HELOC you’ll be able will move from 80% to 65% of the total value of the property.

Read the original link for full details. Many commenters there seem to think this is too big a move.

Appraiser said…
65% is too much of a leap all at once.

I can’t understand why OSFI doesn’t ratchet the LTV ratio down a little more slowly (i.e., 5% at at a time and sit back to observe the consequences).

As has been noted lately, the previous three sets of mortgage tightening guidelines have been gradually working their way through the credit markets effectively.

You can kill an ant with a hand grenade, but it usually makes a hell of a mess.

Days of ultra-cheap money coming to an end

..At least that’s what Mark Carney and other Bank of Canada officials have said according to this article, yet they’re refraining from being more specific.

Meanwhile the Organization for Economic and Co-operative Development (OECD) is urging Canada to start raising interest rates in the fall and keep on raising them to stop an inflating housing bubble and reign in inflation.

The OECD, a high-powered economic research group backed by contributions from its 34 rich country members, offers a scenario: An increase in the benchmark rate of a quarter of a percentage point in the autumn, and similar increases each quarter through to the end of next year, leaving the benchmark overnight target at 2.25 per cent.

That still would be low by historical standards, yet, according to the OECD, likely a big enough increase to cause prospective homeowners to think twice before buying at current inflated prices. However, the OECD’s recommendation comes with a risk.

The Federal Reserve Board has made a conditional pledge to leave U.S. rates extremely low until the end of 2014. Following the OECD’s path could create an unprecedented spread between Canadian and U.S. interest rates, which would put upward pressure on a Canadian dollar that many say already is too strong.

Oh, and the OECD made this same recommendation a year ago and was ignored. So I wonder how Carney intends to bring the days of ultra-cheap money to an end?

Disappearing ghost towns in the media

This is odd.  The Globe and Mail published an article about the condo boom titled “How condo boom threatens a ghost city phenomenon” and included the following alarming section:

“CMHC estimates that roughly 25 per cent of condominiums in the Greater Toronto Area are sold but sitting vacant — shades of Miami at the height of its collapsed condo bubble in 2007. Other analysts say the 25 per cent figure may be too low.

“This is the ghost city phenomenon,” Mr. Holt said.

Condo developers in Eastern cities such as Toronto, Montreal and Ottawa, appear to be rushing to sell and build units before interest rates start to climb, and the market crashes.”

But if you visit that link you’ll no longer find that text and the headline has been changed to “Housing starts shoot higher on back of condo boom” (although as of this writing the URL still shows the original title).  Why the dramatic change in tone?

CMHC gets a bit weird

Here’s a couple of recent stories about Canada’s Housing Agency:  First off there’s the news that the government seems to be trying to figure out how to distance themselves from it, maybe by selling it off:

Anyone trying to understand the concern over a potential housing bubble in Canada need look no further than the debate among government officials over whether to exit the mortgage insurance business.

The board of Canada Mortgage & Housing Corp. considered selling the home loan insurer last year, according to former Chairman Dino Chiesa, who’s term ended in March. CMHC, set up in 1946 to promote home ownership, also studied the sale of Australia’s government-owned insurer and presented the findings to the Bank of Canada, according to documents released to Bloomberg News under Canada’s Access to Information Act.

Here’s the full article.

But of course the CMHC is also saying they see ‘no sign of a market bubble’.

While the report did not make specific reference to the government’s changes in the oversight of CMHC, it did offer what could be characterized an strong validation of its role and operations.

“CMHC follows prudential regulations as set out by the Office of the Superintendent of Financial Institutions, with CMHC maintaining more than twice the minimum capital required by OSFI,” it said. “As a result, CMHC is well positioned to weather possible severe economic scenarios.”

The report also highlighted the important role CMHC plays in the housing market, which it said accounted for 20%, or $346-billion, of Canada’s gross domestic product last year. It pointed out the agency “manages its mortgage loan insurance and securitization guarantee operations using sound business practices that ensure commercial viability without having to rely on the government of Canada for support.”

Here’s that article.