Another federal budget has come and gone with little within its pages that directly affects the housing market other than outlining the direction for legislative amendments to strengthen oversight of Canada Mortgage and Housing Corporation (CMHC) to ensure its commercial activities are managed to promote the stability of the financial system.
The Canadian Real Estate Association (CREA) said it was significant that the federal budget did not include measures to further tighten mortgage financing as had been the talk in Ottawa leading up to the budget’s release.
Actually, the federal government had already taken a number of measures to deal with the mortgage market, such as lowering the allowable amortization period for CMHC-insured mortgages from 35 to 30 years. One organization that felt the mortgage amortization term of 30 years would remain unaffected — despite other views to the contrary — was the Canadian Association of Accredited Mortgage Professionals (CAAMP). Their research found there was no reason at this time to tighten or restrict access to residential mortgages.
Despite some media reports claiming further mortgage restrictions were being considered by the federal government, CAAMP felt that such measures have already affected the mortgage market by dramatically decreasing refinancings and mortgage credit growth.
It is understandable to be concerned about the prolonged low interest rate environment Canadians are taking advantage of to purchase a home, but CAAMP’s research shows the vast majority of homeowners can accommodate rate increases of at least another $200 a month, if necessary.
Its fall 2011 survey indicated mortgage borrowers are already heeding some of Finance Minister Jim Flaherty’s and Bank of Canada Governor Mark Carney’s warnings about high household debt by increasing their lump sum payments and paying down their mortgage faster than required.
While low mortgage rates make housing more affordable and are a contributor to higher house prices, the fact remains that supply and demand also drives housing prices, as does other factors. Today, there are many factors at play, such as the low supply of listings available in a local market, employment and higher wages, consumer confidence, and a lack of alternative choices, such as in Winnipeg, where there has for years been a persistent and acute shortage of rental accommodations. Winnipeg’s rental rate is consistently below one per cent.
It is CREA’s belief that Flaherty was clearly listening to industry associations when he stated prior to the budget that the housing market is a source of many jobs and that he would not act precipitously to do anything unnecessary. Flaherty said he prefers to wait and see if the market will correct itself.
In fact, CREA is predicting a more balanced market this year and next.
As for further restricting access to mortgages, CAAMP said if there is another recession and the housing market is negatively affected, then mortgage activity will lessen. If further restrictions are made to limit access to mortgages, first-time homebuyers and new Canadians would be the most adversely affected. These groups may be able to afford a down payment, but have yet to establish a credit and an employment history. Ultimately, reduced access to capital will make it more difficult for people who can legitimately afford to buy a home.
As CAAMP noted in one of their reports that mortgage defaults are rare in Canada. CMHC paid out only $454 million in the first nine months of 2011 which represents a default rate of just 0.42 per cent. Overall, mortgage arrear rates in Canada have been declining since the 1990s when arrears were more of a concern.
Today, Canadian banks are stable with a well-earned international reputation for their economic prudence. The banks only provide mortgages to those who can pay them back. As such, there is no parallel in Canada to the sub-prime default problems that plagued the U.S. market and left a horrible legacy of underwater properties.