Category Archives: debt

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.

BIS warns on interest rates

From southseacompany: another warning about rates knocking back growth.

“The world has become so used to cheap credit that higher interest rates could derail the global economic recovery, the Bank for International Settlements has warned.”

“After cutting interest rates to all-time lows and pumping trillions of dollars into markets to boost growth in the aftermath of the global financial crisis, central banks are now preparing to tighten their monetary policies.”

“All this underlines how much asset prices appear to depend on the very low bond yields that have prevailed for so long.”

Read the full article here.

New regulation lead to 44% drop in CMHC mortgages

If you’re buying with less than 20% down, you’re a ‘high-risk’ borrower and you’re probably using CMHC insurance on your mortgage. New regulations are having a big impact on buyers in this zone with new CMHC mortgages dropping by 44%. Bullwhip29 pointed out this article in BIV:

Through the first half of 2017, CMHC-insured mortgages had dropped to 95,000, down from 118,000 in the first half of 2016.

In October 2016, the federal government began a stress test for approving all high-ratio insured mortgages with terms of five years or more. It required such borrowers to prove they can handle payments at the Bank of Canada’s posted five-year rate, which is about twice as high as the lowest lending rates available.

Read the full article here.

Mortgage rules are working to cool market

Pointed out by SouthSeaCompany: Mortgage rule changes are cooling housing market: Morneau

“Finance Minister Bill Morneau says last October’s sweeping mortgage rule changes aimed at cooling Canada’s housing market have successfully dampened high-risk borrowing.”

“But despite a report urging Ottawa to look at ways of boosting support for Canadians entering the housing market, the Minister ruled out any new measures along those lines, expressing concern that such an approach would encourage higher house prices.”

Read the full article over at the Globe and Mail.