Even with all the recent warnings of a housing bubble that is no longer limited to just Vancouver and Toronto, you’ll still find lots of media coverage that dismisses bubble talk or explains it away as an ‘ownership premium’.
It’s not difficult to see why this is – there are thousands of people who’s incomes depend upon the housing market.
Whether its condo marketer Bob Rennie or a random realtor, they all have their day to day income tied to the health of the real estate
market and conveniently are given ‘expert’ status and quoted by the local media.
That makes an article opener like this all the more shocking to newspaper readers:
Is there a housing bubble in the Lower Mainland? Housing zeppelin is more like it. Bubbles, after all, are soft and cute and harmless. Zeppelins, conversely, hurtle into the ground, spewing flaming wreckage in all directions. And that’s precisely what we’re about to witness in Metro Vancouver.
That’s the intro to a rather dramatic editorial written by Gord Goble and published in a number of local papers.
Canadian mortgage brokers are freaking out about new refinancing rules proposed by the OSFI which has taken over responsibility for the CMHC. Reasonably enough, they’re asking for clarification about proposals to require banks to check income and current house value before refinancing.
Currently, when mortgages come up for renewal, banks tend to focus on the borrower’s payment history. They rarely appraise the property again and not all banks will check the borrower’s updated income level, Mr. Murphy said.
“CAAMP strongly recommends that this concept be clarified so that mortgages continue to be renewed at maturity without requalification,” the industry association said in a submission to the Office of the Superintendent of Financial Institutions (OSFI).
“If not, homeowners who have been in compliance may no longer qualify. This would result in a number of properties hitting the market at the same time and thereby driving down prices.”
Such a phenomenon could add further fuel to a real estate downturn if lower house prices and higher unemployment caused more people to lose their homes upon renewal, Mr. Murphy suggested.
Read the full article in the Globe and Mail.
A new report issued by US ratings agency Fitch says that fast-rising home prices and record levels of household debt pose a threat to the credit portfolios of Canadian banks.
The agency examined the exposure of Canada’s six largest banks to mortgage risk and found that household debt fuelled by mortgage credit expansion in Canada is the largest threat to credit profiles.
“These are quite high levels of debt for households and the movement in house prices, we don’t think this is sustainable in the long term,” said report author Fabrice Toka, senior director at Fitch.
The six banks have a combined $730-billion in mortgage exposure and an additional $182-billion in home equity loan exposure, the report noted.
High unemployment or interest rate shock “could aversely affect the ability of leveraged homeowners to meet their mortgage obligations,” the report said.
The risk testing scenario looked at drops of 1 to 10% and sees CIBC and RBC as the most exposed to mortgage value risks. The debt-to-income ratio in Canada is currently higher than it was in pre-recession US, but Fitch points out that there are structural differences in our housing market.
Here’s the full article in the Financial Post.
A Bank of Montreal report is predicting that Vancouver house prices will continue to fall for the next couple of years:
BMO Senior Economist Sal Guatieri says the price of homes in Vancouver and uncertainty over long-term mortgage rates are creating a buyer’s market.
He also says rich foreign investors who have driven up real-estate prices in Vancouver are now looking at cities that are less expensive.
“The sizzle is coming off the Vancouver housing market,” Guateri says.
Read the full article over at News 1130.
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.