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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.
National house price index rises again in August
The national HPI has grown at a below-inflation rate of 0.6% over the last 12 months. However, the weakness is not regionally broad-based. The national HPI has been depressed by 12 consecutive months without a rise in Vancouvers index, which dropped a cumulative 6.6%. Other Western metropolitan areas (Victoria, Calgary, Edmonton, and Winnipeg) also contributed to slow the national HPI. At the opposite, annual growth has been decent in most of the regions located in the central and eastern part of the country. That being said, home sales in August were up 55% from March in Vancouver, where market conditions went from favorable to buyers to balanced. Over that period, home sales rose 19% in Calgary and 12% in Edmonton. These improvements, if sustained, will sooner or later help limit home-price deflation in this region.
The TeranetNational Bank Composite National House Price IndexTM increased 0.4% in August, a fourth gain in a row after an eight-month string without a rise.
On a monthly basis, the index rose in 8 of the 11 markets covered: Victoria (+0.2%), Calgary (+0.6%), Hamilton (0.7%), Winnipeg (0.7%), Toronto (+0.8%), Montreal (1.1%), Ottawa-Gatineau (1.7%) and Halifax (1.8%). The index was down in Vancouver (-0.8%), Quebec City (-0.4%) and Edmonton (-0.1%).
From August 2018 to August 2019, the Composite index rose 0.6%. Over the period, the HPI declined in Vancouver (-6.6%), Edmonton (-3.1%), Calgary (-2.3%). It was marginally up in Quebec City (0.1%), Victoria (0.7%) and Winnipeg (1.1%). It grew more convincingly in Toronto (+3.8%), Hamilton (+4.4%), Halifax (5.5%), Montreal (+5.7%) and Ottawa-Gatineau (+6.4%).
Source: National Bank, Marc Pinsonneault
CREA Updates Resale Housing Market Forecast
The Canadian Real Estate Association (CREA) has updated its forecast for home sales activity via the Multiple Listing Service (MLS) Systems of Canadian real estate boards and associations for the rest of 2019 and looking ahead to 2020.
Economic fundamentals underpinning housing activity remain strong outside of the Prairies and Newfoundland and Labrador. Population and employment growth have both remained supportive and the unemployment rate remains low. At the same time, expectations have become widespread that the Bank of Canada is unlikely to raise interest rates over the rest of the year and into next.
More importantly for home buyers and housing markets, longer-term mortgage rates have been declining. Among those that have declined is the Bank of Canadas benchmark five-year rate used by banks to qualify mortgage applicants.
Additionally, the Federal Government has recently launched its First-Time Home Buyer Incentive, a shared equity program in which the federal government finances a portion of a home purchase in exchange for an equity share of the homes value.
Of these factors supporting Canadian housing activity, the decline in mortgage rates is arguably the most important development since the release in June of CREAs most recent forecast. The decline in the benchmark five-year mortgage rate has marginally relaxed the B-20 mortgage stress-test, which has dampened housing activity more than other policy changes made in recent years.
Home sales have improved by more than expected in recent months and there are early signs that home price declines in the Lower Mainland of British Columbia and across the Prairies may be abating. Meanwhile, home prices are re-accelerating across Ontarios Greater Golden Horseshoe region.
Strong economic fundamentals, previously unexpected declines in mortgage interest rates and stronger than previously expected housing market trends in British Columbia and Ontario have resulted in CREA upwardly revising forecast home sales in 2019 and 2020. Nonetheless, the overall level of national sales activity this year and next is anticipated to remain below levels recorded prior to the implementation of the B-20 stress test.
National home sales are now projected to recover to 482,000 units in 2019, representing a 5% increase from the five-year low recorded in 2018. While this is an upward revision of 19,000 transactions compared to CREAs previous forecast (85% of which is due to upgraded British Columbia and Ontario forecasts), it represents a return of activity to its 10-year annual average. It also remains well below the annual record set in 2016, when almost 540,000 homes traded hands. Notwithstanding the upward revision, the forecast for 2019 on a per capita basis remains the second weakest since 2001.