Category: Mortgage Information

This article appeared on CBC.ca on the 29th of May 2015.

Canadians are showing a strong ability to manage their debts even as housing prices rise, with arrears on CMHC mortgages at a low 0.34 per cent for the first quarter of this year, according to new figures from the federal housing agency.

That means there were 9,572  Canada Mortgage and Housing Corp.-insured mortgages in arrears in the quarter, while it insures a total of 2.8 million mortgages. It had to pay just 588 claims.

The gross debt service ratio for Canadian homeowners – the percentage of housing costs to gross monthly income – sits at 26 per cent for the three months ended March 31.

That’s almost the same as in the first quarter of 2014, but up slightly from 25 per cent in 2013.

The ratios are highest in Alberta, British Columbia and Ontario, where housing prices have been rising rapidly. New homeowners in those provinces are also more likely to need a CMHC mortgage, which is necessary when buyers do not have a 20 per cent down payment.

However, a small proportion of CMHC-insured homeowners – 12.1 per cent – have a gross debt service ratio of more than 35 per cent, meaning more than a third of their monthly income goes to housing costs.

Another 21 per cent of CHMC-insured mortgage holders are juggling housing costs of 30 to 35 per cent of their gross income.

As housing costs rise, more than a quarter of the mortgages insured by CMHC are for over $400,000.

However, the average insured loan amount was $238,630.

In its annual report the federal agency predicts today’s low interest rates will continue to stimulate demand for housing.

It expects mortgage rates will not rise in Canada before the end of 2015.

The report comes after CEO Evan Siddall said CMHC’s share of the mortgage market had dropped from about 90 per cent of new mortgages to about half of new mortgages.

Ottawa had encouraged the agency to reduce exposure to mortgage defaults for the Canadian taxpayer, saying it wanted private insurers to take over the risk.

In its annual report, CMHC said it insured mortgages worth $543 billion in 2014, down 4.1 per cent from 2012, and below the legal limit of $600 billion.

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This article appeared on the CP24 (CTV News) on January 21st, 2015 and was written by Alexandra Posadzki, The Canadian Press.

TORONTO — Canadian homeowners have likely gained a reprieve from an expected increase in mortgage rates this year.

Economists were expecting rates to dip slightly in response to the Bank of Canada’s surprise move Wednesday to cut its trend-setting interest rate to 0.75 per cent, from one per cent, to soften the blow of dropping oil prices on the Canadian economy.

“This signals that low interest rates will be with us a while longer,” said Avery Shenfeld, the chief economist at CIBC World Markets, noting that the central bank’s rate cut will likely mean a corresponding 0.25 drop in variable, or floating, mortgage rates.

Fixed-rate mortgages are also likely to see a slight decline, as they follow bond yields, which will move lower in response to the rate cut.

However, TD Bank (TSX:TD) was quick to announce Wednesday it will maintain its prime interest rate at three per cent, noting that factors beyond the central bank influence its rates.

“Not only do we operate in a competitive environment, but our prime rate is influenced by the broader economic environment, and its impact on credit,” the bank said in a statement.

It was anticipated that the Bank of Canada would move to increase its overnight rate later this year due to an improving economy, until crude prices started to slide and dropped below US$50 a barrel.

Phil Soper, president of realtor Royal LePage, predicted Canadians could be shopping for cheaper mortgages within days.

“It doesn’t take long to react to a policy change like this,” Soper said. “That’s why it’s such a powerful tool.”

A conventional five-year mortgage stands at about 4.79 per cent, according to data from the Bank of Canada.

Decreased mortgage rates could boost sales and prices of homes in Central Canada, including in Toronto’s red-hot property market, where Soper said prices could climb by 4.5 to five per cent this year.

“It will be a lift to the industry overall,” Soper said. “However, it will be particularly pronounced in Central Canada, which we believe will see a lift from lower oil prices regardless and, when you add to it the stimulative impact of lower mortgage rates, we should see an uptick in activity.”

However, the rate cut may also spur Canadians, who have been criticized previously by the Bank of Canada for holding record levels of debt, to borrow more money.

“Certainly this isn’t going to discourage anyone from taking on debt,” Shenfeld said.

“But I think in the Bank of Canada’s eyes right now, it’s a lesser of two evils. They’ve shown discomfort with the amount of borrowing Canadians have done, but the economy right now can’t afford to shut the tap off on that if we’re not getting the lift to growth from the energy sector.”

Although cheaper mortgage rates are likely to buoy real estate markets in Central and Atlantic Canada, TD economist Craig Alexander says the impact of oil prices will trump interest rates in Western Canada.

“I think it’s inevitable that you’re going to see a pullback in sales and a softening in price growth in real estate in oil-rich provinces because, at the end of the day, income growth in those provinces is going to be a lot less,” Alexander said.

“It is an economic shock, and real estate markets do reflect local economic conditions.”

In its latest report, Royal LePage predicted home prices in Calgary would grow by 2.4 per cent this year – a slowdown from the 5.5 per cent jump they made last year.

Meanwhile, older Canadians who rely on interest-bearing investments for their income could find themselves squeezed as a result of the central bank’s policy change.

“It will push them into looking at alternative investments that can generate a bit more yield than a straight GIC,” Shenfeld said.

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This article appeared in the Financial Post on October 20th, 2014 and was written by Garry Marr. CMHC Continuing With Plans for Banks to Take on More Mortgage Risk

The head of Canada Mortgage and Housing Corp. said the Crown corporation is continuing with plans to have banks take on more risk when it comes to the housing market.

“In the insured market all of the risk is on CMHC’s balanced sheet or 90% on the government’s balanced sheet through private sector competitors. The government wants to reduce its exposure to the housing market,”  Evan Siddall, president of Canada Mortgage and Housing Corp. told the Canadian Club in Toronto in what was billed as a “conversation” with Terry Campbell, president of the Canadian Bankers Association.

Mr. Siddall said the government has asked CMHC to look at options and advise it on what to do next.

Consumers with less than a 20% downpayment must get mortgage default insurance if they are borrowing from a bank regulated by the Bank Act. The government backs loans insured by CMHC 100% and for up to 90% for private entities like Canada Guaranty.

Mr. Siddall has said there is some value to banks having some “skin in the game” which some have suggested could mean banks pay a deductible of up to 10% in the event a consumer defaults.

“It’s kind of classic perspective,” said the CMHC head. “It’s this idea of moral hazard that if you took risk away from the people who confronted it in the marketplace, it could lead to bad behaviour. The stupid example is if you insure someone who is driving a car, they won’t be a responsible car driver.”

Mr. Siddall said the banks are responsible but the idea of deductible is “good idea” and something along those lines is good economic policy.

Sources have told The Financial Post that CMHC has already been in discussions with the CBA and Office of the Superintendent of Financial Institutions about the idea which is years away from being implemented.

Mr. Campbell told the audience a lot of conversation with the industry will be needed before anything happens.

“In Canada, as you know and everybody in this audience knows, we did not have a housing crash like some other jurisdictions,” said Mr. Campbell, chalking that up to good risk management on behalf of banks when it comes it lending. “I think banks do have an awful lot of skin in the game if you look at the growth in their uninsured portfolio.”