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Housing and the Big, Bad, Budget
A lot has been said about Thursday's budget announcement. From Flaherty's shoe selection to a vague job-training program, many Canadian's were left slightly confused following the much-anticipated announcement. With that being said, Flaherty's eighth (and potentially final) budget announcement could have been worse, especially for the mortgage industry. Thursday's budget included a tightening of controls on mortgage lending once again, as well as another promise to further limit lender access to bulk mortgage insurance. While this will inconvenience some lenders, it's actually good news for taxpayers. The announcement is just the latest in a long line of moves from the Finance Department that touch on concerns over the housing market. As Canadian's continue to sink themselves deeper into household debt, Flaherty once again verbalized his mounting anxiety over interest rates. “Our concern, my concern for a number of years, is with very low interest rates that people can afford their mortgages when interest rates go up,” Flaherty told reporters while purchasing is budget-day shoes, a long-running Canadian tradition, at a Roots factory in Toronto on Wednesday. The Housing Market Under a MicroscopeFlaherty has made a career out of meddling in the in the mortgage market, influencing a number of policy changes in the past decade. And while home sales have slowed significantly and prices are beginning to drop in some of the critical markets since Ottawa's intervention last summer, Flaherty still feels that more needs to be done to protect consumers from themselves. As the economy slowly begins to right itself and interest rates eventually begin to rise, economists like Flaherty are worried that current mortgage holders won't be able to meet their increased mortgage payments. And since Ottawa backstops mortgage insurance, the Canadian taxpayer would be on the hook to cover this exposure. The Bad Side of Bulk Mortgage InsuranceMortgage insurance, which is backed up by the Canadian Mortgage and Housing Corporation, is intended to help consumers with low down payments enter the housing market more easily. Unfortunately, over time, it's also become a tool for banks to manage their risk. Banks' appetite for bulk mortgage insurance (also referred to as portfolio insurance) has continue to grow over the years. In fact, it's one of the main factors behind the government-owned CMHC's growing balance sheet. You see, whenever a new homeowner purchases a house without the mandatory 20 percent down, the mortgage needs to be insured to protect the lender. However, banks also offer this extended coverage to insure large swaths, or portfolios, of mortgages that don't necessarily need the protection. The budget states that, “With the financial crisis well behind us, the government is amending the rules for portfolio insurance to increase market discipline in residential lending and reduce taxpayer exposure to the housing sector.” New RulesFallout from the budget will include new rules that will gradually limit the sale of insurance on low loan-to-value mortgages (i.e. mortgages where the consumer ponies up a higher down payment) to those that are being used in Ottawa's securitization program through the CMHC. This will prevent banks from insuring their portfolio mortgage products in order to reduce their capital requirements. Flaherty's changes will also enable Ottawa to stop the use of any taxpayer-backed insured mortgages (even the high ratio ones)as collateral in securities that are not sponsored by the Canadian Mortgage and Housing Corporation. This will protect Ottawa's potential exposure. Flaherty and the Department of Finance noted that they intend to further consult with the finance industry before implementing this rules later in the year. In the meantime, financial institutions will continue to have access to a broad array of financing options. As always, we'll follow this story as it unfolds right here on the Mortgage Talk Canada Blog.
Building permits up in Western Canada, down east of Manitoba
Four provinces reported increases in March, led by British Columbia with an increase of 12.8% (+$180 million). Meanwhile, all provinces east of Manitoba reported declines. The largest decrease was in Ontario, down 1.4% (-$43 million) due to lower construction intentions in the residential sector.
Quebec drives movement in non-residential permits. The national value of permits for non-residential buildings rose 7.9% in March, due to higher construction intentions for both institutional (+$175 million) and commercial (+$166 million) buildings. Gains in both of these components stemmed from Quebec. A high value permit for an addition to the Centre hospitalier de lUniversit de Montral drove the increase in the institutional component.
In the industrial component, the value of permits declined 15.6% in March (-$102 million). The decrease was largely the result of lower construction intentions in Quebec, where multiple high-value permits were issued in February.
Canadian home sales edge higher in March 2019
Home sales via Canadian MLS Systems edged up 0.9% in March 2019 following a sharp drop in February, leaving activity near some of the lowest levels recorded in the last six years.
There was an even split between the number of markets where sales rose from the previous month and those where they waned. Among Canadas larger cities, activity improved in Victoria, the Greater Toronto Area (GTA), Oakville-Milton and Ottawa, whereas it declined in Greater Vancouver, Edmonton, Regina, Saskatoon, London and St. Thomas, Sudbury and Quebec City.
Actual (not seasonally adjusted) sales activity fell 4.6% y-o-y to the weakest level for the month since 2013. It was also almost 12% below the 10-year average for March. That said, in British Columbia, Alberta and Saskatchewan, sales were more than 20% below their 10-year average for the month. By contrast, activity is running well above-average in Quebec and New Brunswick.
It will be some time before policy measures announced in the recent Federal Budget designed to help first-time homebuyers take effect, said Jason Stephen, CREAs President. In the meantime, many prospective homebuyers remain sidelined by the mortgage stress-test to varying degrees depending on where they are looking to buy. All real estate is local, and REALTORS remain your best source for information about sales and listings where you live or might like to in the future, added Stephen.