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CMHC cutting back on what it covers with mortgage default insurance
Canada Mortgage and Housing Corp., the Crown corporation that controls the vast majority of mortgage default insurance in the country, says it plans to get out of the market for second homes and is adding restrictions for self-employed Canadians.
Effective May 30, CMHC said it will discontinue insuring second homes and will require self-employed Canadians to have third party income income validation.
The Crown corporation said the changes are being made as part of its review of its mortgage loan business. The organization has already said it is raising rates across the board May 1, a move that comes after the federal government last year appointed a new chair for CMHC and brought in a new chief executive.
CMHC helps Canadians meet their housing needs and contributes to the stability of the housing market and finance system said Steven Mennill, senior vice-president, insurance, in a release. As part of the review of its mortgage loan insurance business, CMHC is evaluating its products and services to ensure they are aligned with these objectives.
The agency said its the first set of changes resulting from the review of its operation. TheFinancial Postreported this month that Evan Siddall, a former investment banker brought in as CEO, has been asked about the possibility of a risk-based method of assessing mortgage default insurance. Sources say the new CEO has told people he doesnt disagree with the principal of risk-based insurance.
The changes announced Friday affect a small portion of the market. CMHC said its second home and self-employed without third party income validation business account for less than 3% of CMHCs insured business volumes in units.
Given the limited use of these products, their discontinuation is not expected to have a material impact on the housing market, the agency said in a release.
CMHC first introduced the program for self employed people in 2007 in response to industry competition which at its peak saw some U.S. players enter the market and encourage changes that created amortization lengths as long as 40 years. The government has since restricted loans to 25-year amortizations.
The second home product was introduced in 2005 and applied when purchasing an owner-occupied second home anywhere in Canada.
CMHC said it will limit the availability of homeowner mortgage loan insurance to only one property (one to four units) per borrower/co-borrower at any given time.
Benjamin Tal, deputy chief economist with CIBC, said the announcement was not a big surprise given the mandate of providing more stability. That might not be the end of it. We might see more coming from CMHC.
Finn Poschmann, vice-president of research at the C.D. Howe Institute, said the requirement for validation seems reasonable.
What is interesting is the question of whether the change will tend to shift risk away from CMHC and toward the private insurers. Whether that is the outcome will be determined by the private insurers responses, he said, in an email.
Bank of Canada increases overnight rate target to 1 1/4 per cent
The Bank of Canada today increased its target for the overnight rate to 1 1/4 per cent. The Bank Rate is correspondingly 1 1/2 per cent and the deposit rate is 1 per cent. Recent data have been strong, inflation is close to target, and the economy is operating roughly at capacity. However, uncertainty surrounding the future of the North American Free Trade Agreement (NAFTA) is clouding the economic outlook.
The global economy continues to strengthen, with growth expected to average 3 1/2 per cent over the projection horizon. Growth in advanced economies is projected to be stronger than in the Banks October Monetary Policy Report(MPR). In particular, there are signs of increasing momentum in the US economy, which will be boosted further by recent tax changes. Global commodity prices are higher, although the benefits to Canada are being diluted by wider spreads between benchmark world and Canadian oil prices.
In Canada, real GDP growth is expected to slow to 2.2 per cent in 2018 and 1.6 per cent in 2019, following an estimated 3.0 per cent in 2017. Growth is expected to remain above potential through the first quarter of 2018 and then slow to a rate close to potential for the rest of the projection horizon.
Fourth Quarter Housing Market Trends Seal 2017 as ‘the Year of the Condo’
According to the Royal LePage House Price Survey, Canadas residential real estate market saw strong, but slowing year-over-year price growth in the fourth quarter of 2017. While year-over-year aggregate appreciation remained high in the Greater Toronto Area (GTA) and Greater Vancouver, two-storey and bungalow home values softened in the GTA, slightly declining on a quarter-over-quarter basis. Meanwhile, in both Greater Vancouver and the GTA, condominium prices continued to outpace all other property types, primarily due to growing affordability constraints within these markets.
The Royal LePage National House Price Composite, compiled from proprietary property data in 53 of the nations largest real estate markets, showed that the price of a home in Canada increased 10.8 per cent year-over-year to $626,042 in the fourth quarter of 2017. When broken out by housing type, the median price of a two-storey home rose 11.1 per cent year-over-year to $741,924, and the median price of a bungalow climbed 7.1 per cent to $522,963.
During the same period, the median price of a condominium appreciated faster than any other housing type studied, rising 14.3 per cent to $420,823 on a year-over-year basis. This trend was predominantly driven by the significant price gains witnessed in many of the countrys largest condominium markets. In the GTA, the median price of a condominium increased 19.5 per cent year-over-year to $476,421, while in the City of Toronto, the segment saw a similar gain of 19.6 per cent year-over-year to $515,578. In Greater Vancouver, condominiums also followed a similar price trajectory during the quarter, rising 20.2 per cent to $651,885, while the median price of a condominium unit in the City of Vancouver rose 18.7 per cent to $775,806. Many suburban markets across the GTA and Lower Mainland of British Columbia posted strong year-over-year condominium price gains of 20 per cent or more as well, with the segment appreciating at a faster rate than detached homes, which had previously led the charge.
To prospective homeowners in our largest cities, condominiums represent the last bastion of affordability, said Phil Soper, president and CEO, Royal LePage. This is especially true for first-time buyers whose purchasing power has been reduced by tightening mortgage regulations. Click here for more.