Good news for your monday morning!
If Canada saw a ‘US-style housing crisis‘ the big 6 banks could generate enough capital in a few quarters to cover losses.
If Canada were to experience a U.S.-style housing crisis, with house prices falling by up to 35 per cent, mortgage lenders including the country’s big six banks could lose nearly $12 billion, according to a new report from Moody’s Investors Service.
CMHC would also take a hit of about $6 billion if they challenge and reject claims, but if they decided not to they would take about half the loss as it would be more evenly split between the banks and CMHC.
You probably don’t have to worry about a US-style nationwide housing crash, because we have a different mortgage market that is explicitly backed by the government. The main concern would be rate increases and job losses as Canadian debt loads continue to increase:
There was almost $1.6 trillion in mortgage debt outstanding at the end of March, including home equity lines of credit, more than double the amount outstanding 10 years ago.
Read the full article over at the Financial Post.
southseacompany pointed out this article in the Financial Post:
You can walk away from your mortgage (if you live in Alberta) but should you?
“Francis, a 34-year-old welder from the mining town of Grande Cache, Alberta, says he wishes he could get out of the townhouse he bought four years ago.”
“He bought the home for $175,000 with a five per cent downpayment but still owes $150,000 on his mortgage. He says the market for his home has collapsed in his town and a realtor just told him the best price he could expect is $75,000.”
“Since the loan is “under water,” his bank would be left with a shortfall that CMHC would have to cover. The Crown corporation would likely sue him for any losses it has to cover, so if he has any assets, CMHC will go after him.”
“Handing over the keys to the house and walking away from your mortgage, called “jingle mail,” was a defining act of the American housing crisis and helped send the market south of the border into a deeper tailspin.”
Interesting theory, but as we actually saw in the US states with recourse loans (i.e. Nevada, Florida) saw just as much of a collapse as non-recourse states.
An article over at the Financial Post by Garry Marr asks if recent hikes in mortgage insurance fees are targeting first time buyers.
The move by Genworth Canada, which matches an increase announced Thursday by Canada Mortgage and Housing Corp. will raise insurance costs by 15% for those Canadians with the highest debt-value mortgages allowed by Ottawa.
Of course lets keep things in perspective here – that 15% increase may result in an extra cost of about $5 dollars a month.
You’d have to be really stretched for that to be an issue.
Rob McLister, founder of ratespy.com, said insurers are padding their margins and doing it for loans that usually result in the least amount of money recovered during defaults.
Read the full article here.
Apparently it’s not just the Bank of Canada that thinks Canadian RE buyers are suckers. The IMF is issuing yet another warning of potential problems in the Canadian Real Estate Market.
The International Monetary Fund is raising red flags about Canada’s housing market, warning that moves by Ottawa in recent years to tighten mortgage lending standards and boost oversight of the country’s financial system haven’t gone far enough.
Household debt levels remain well above those in other Western countries, the organization said in a commentary posted to its website Monday. Home prices have jumped 60 per cent in the past 15 years and remain overvalued from 7 per cent to 20 per cent, in line for a “soft landing” over the next few years, the IMF said.
At the same time, it reiterated its call for Canada to collect more data on its housing market and to centralize oversight of the financial sector. As it stands, regulation remains fractured among the Department of Finance, the Office of the Superintendent of Financial Institutions, the Canada Mortgage and Housing Corporation and provincial governments all playing separate roles in regulating the housing the market.
Read the full article in the Globe and Mail.
It’s that time of the week again…
Friday free-for-all time!
This is our regular end of the week news roundup and open topic discussion thread for the weekend.
Here are a few recent links to kick off the chat:
–Sceptical of CMHC data?
–Langley Condos at 2006 prices
–Canadas random success story
–A bubble in renters?
–Oil prices on housing a ‘wild card’
So what are you seeing out there? Post your news links, thoughts and anecdotes here and have an excellent weekend!
It’s a been a while since CMHC mortgage lending rules have been ramped back to more historical levels.
After dabbling in American style 40 year zero down mortgages we decided that might not be the best idea. Unfortunately we never did get the American style locked in interest rate for the full duration of the loan.
So now we’re back to 25 year terms and it’s more difficult to get a loan if you’re self employed. A lot of loan applications that would have been approved a year or two ago are now being rejected.
So what affect has this had on the market so far?
Well apparently the sub-prime lending market in Canada has rocketed to a record level for one.
Capital Corp is a non-bank lender that has been operating since 1988. Their chief executive Eli Dadouch says there’s a lot of money out there for non-bank loans to higher risk borrowers.
He said there is no question it’s the top of the real estate cycle, so anybody lending out money has to be more careful today.
“People always want to deal with a bank, it’s the cheapest form of money,” he said. “When they come to us and people like us, it is because there is some type of story [behind why they can’t get credit]. It’s easy to lend money, the talent in this business is getting it back.”
Read the full article in the Financial Post.
Joining in that venerable tradition of holiday season layoffs, the Canadian Mortgage and Housing Corporation has announced that it is cutting 215 jobs which is close to 10% of it’s workforce.
But of course this is government, so they will also be adding jobs, resulting in only a small net loss of positions:
The federal agency said Friday the employees have been declared surplus and will see their jobs disappear at both CMHC’s head office in Ottawa and its regional operations.
However, CMHC says it is adding to its staff in risk management and information technology, so the organization will only see a “small net reduction” in its overall staffing levels.
Read the full article here.
We’ve played this game before.
When you compare what you get in Vancouver for your housing dollar vs. some other locations you get some interesting comparisons.
The CBC has an article looking at the cheapest houses in Vancouver and how they compare to some US locations.
A new CMHC report says Canadian home prices are moderately overvalued in some cities, but Vancouver is labelled as low risk by the Crown corporation in its latest housing market assessment.
One measure used by economists is the amount of income earned by the average family compared to house prices. By those standards, prices in Vancouver are some of the most expensive in the world.
See their gallery here.
The CMHC is predicting declining house sales in the lower mainland over the next couple of years due to higher mortgage interest rates.
“Total housing starts will edge higher as resale market conditions remain balanced and the supply of completed and unabsorbed (unsold) new homes trends lower,” said CMHC B.C. regional economist Carol Frketich.
“Housing demand will be supported by employment and population growth, but tempered by gradually rising mortgage interest rates.”
They are predicting price growth of 1.2 and 1.7% (unclear if this is before or after inflation) and they forecast this based on an assumption of a shift to ‘lower cost housing’.
Which might be good news for anyone trying to sell ‘lower cost housing’ since prices on Vancouver homes under $1.1 million have gone essentially nowhere over the last four years.
There’s an article over at the CBC on the CMHC and CEO Evan Siddall.
Mr. Siddall is of the opinion that the CMHC should not be privatized as it acted as a ‘shock absorber’ during the last correction, but does think the banks should take on a share of the risk for insured mortgages.
“That ultimately will be a decision for government to make and we’re in the process of looking at different options that will take a few years to evaluate, but the idea is that people should have skin in the game,”
“In the insured mortgage businesses, the banks offload all that risk to the government through CMHC, The government’s interested in taking a reduced role in the housing market … so we’ll look at different ways to share risks with lenders.
What do you think, should the CMHC force banks to take on more responsibility for the insured loans they hand out or would the banks just use that as an excuse to charge more?
Read the full article here.