Category: National Real Estate News

This article appeared on the Huffington Post on January 31st, 2012 and was written by Craig Wong.

OTTAWA – A federal limit on the amount of loans Canada Mortgage and Housing Corp. is allowed to insure could lead to stricter lending conditions and a cooling of the housing market, TD Bank economist Sonya Gulati said Tuesday.

“It may serve to tighten the housing market,” Gulati said.

CMHC had insured $541 billion in loans at Sept. 30, compared with $501 billion a year earlier and $514 billion as of Dec. 31, 2010. The limit was raised to $600 billion in total outstanding insured amounts from $450 billion in 2008.

Although Ottawa could increase the limit, as it did in 2008 in the wake of the financial crisis, it may not want to if it thinks too many people are borrowing more than they should, Gulati said.

Canadian mortgage rates have been near record lows in recent months. Earlier this month, some of Canada’s biggest banks began advertising promotional ultra-low fixed rate mortgages at 2.99 per cent for five years.

“If there are indications from the government perspective that there is overheating, one of the mechanisms can be to change mortgage eligibility rules,” Gulati said.

“Another way is to restrict or to indirectly make getting a mortgage tougher.”

Homebuyers who put down less than 20 per cent are required to pay for mortgage default insurance.

However, financial institutions may also take out mortgage default insurance where the borrowers put down more than the minimum required to avoid the mandatory insurance. The move allows banks to more easily bundle the mortgages and raise money on the capital markets with covered bonds backed by the mortgages.

CMHC said Tuesday it has recently received an unexpected level of requests for large amounts of CMHC portfolio insurance, which allows lenders to buy insurance on pools of previously uninsured low ratio mortgages.

“To ensure equitable access to portfolio insurance within CMHC’s annual limits, an allocation process is being established which has caused some delays,” the federal agency said.

CMHC noted that it does not affect the availability of CMHC’s mortgage loan insurance for qualified home buyers and would not impact the cost of buying a house.

RBC economist Robert Hogue noted that the government could raise the CMHC limit, but it is walking a fine line to keep the housing market from slowing too much or overheating.

“We’re looking for a middle of the road kind of performance so it would be, policywise, a very delicate balance to strike,” he said.

“I’m sure any kind of signal that might spook the housing market would be considered very prudently and at the same time, if there is any sign the market is starting to demonstrate signs it is going overboard it might want to find ways to cool it.”

Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney have been warning for months that Canadians have been racking up more debt than they can sustain as a result of a long period of ultra-low interest rates.

Ottawa has been tightening mortgage lending rules in recent years in the effort to limit the dangers of a crisis in the real estate market in Canada.

Last year, the federal government reduced the maximum amortization period for new government-backed insured high-ratio mortgages to 30 years from 35 years and cut the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent.

The government has also withdrawn insurance backing on non-amortizing home equity lines of credit.

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This article appeared on CBC.ca on January 25th, 2012.

Real estate agents in and around Vancouver are expecting big things this week, thanks to the Lunar New Year, which is typically a great time for sales.

Real estate agent Malcolm Hasman showed four Chinese families through a $7.8 million mansion in West Vancouver on Tuesday. The home has panoramic views, two kitchens and even a heated driveway.

“In the last two days, I’ve had non-stop telephone calls from all the top Chinese agents in the city to show my properties,” Hasman said.

Hasman said the beginning of the Lunar New Year is always a busy time for Chinese buyers, but this year is busier than most.

With recent volatility in the stock market, buyers could be even more eager to invest in property, said Melanie Briggs, of MAC Marketing.

“Based on what we’ve seen in years past in our downtown projects, we’ve definitely seen at least double the volume of sales,” said Briggs. “So I wouldn’t be surprised if we were to see triple the number of sales.
Dragon heats things up

The fact that 2012 is the Year of the Dragon is likely also stoking the market, according to Duanduan Li, an Asian Studies professor at the University of B.C.

“People like to choose an auspicious moment, dates and years to do big things because they think this will be more successful,” said Li. “I think the Year of the Dragon is regarded as a very good year to do anything big.”

“Big” in this context could include career changes, having children, said Li. And perhaps spending millions of dollars on real estate.

The dragon is one of a 12 animals represented chronologically in the Chinese zodiacal system. The Year of the Dragon returns in 2024. Next year will be the Year of the Snake.

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This article appeared on the Globe and Mail on January 23rd, 2011 and was written by Ted Rechtshaffen.

A few months ago I heard leading Canadian investor Eric Sprott speak, and he said a very basic thing that struck a chord. He said that you should not be afraid to connect the dots. The dots are usually in front of you, but people don’t often look beyond the single dot.

Today I am going to show six dots that we can all see. When we connect them, the conclusion is that the Canadian Mortgage and Housing Corp. (CMHC) has a realistic chance of putting the Canadian taxpayer at risk – unless meaningful changes are made.

The key piece of background is that right now, a young couple can put down $20,000 to buy a $400,000 house, or five per cent of the purchase price. Their mortgage will be insured by CMHC (the Canadian government, also known as you and I) in exchange for a fee paid by the young couple.

If that $400,000 house drops in value by 20 per cent, for example, which has happened before in Canada, it will be worth $320,000. But the couple will owe $380,000. Then the odds of them walking away from their house or defaulting on their mortgage become meaningful. Given that this young couple might be in the same position as 50,000 other young couples (about 3 per cent of the Canadian population) at roughly the same time, the odds of a surge in mortgage defaults is very real in Canada.

Here are the dots or facts that we can all see:

Dot #1: “The greatest risk to the domestic economy is household debt,” Bank of Canada Governor Mark Carney said in an interview with the CBC last week, again sounding the alarm bell on excess borrowing.

Dot #2: The ratio of credit market debt to personal disposable income rose to a record high of 150.8 per cent in the third quarter of 2011, Statistics Canada said last week, the third-straight quarter the figure has gone up.

Dot #3: Last week, Bank of Montreal offered a five-year mortgage rate of 2.99 per cent. The lowest rate offered in history. Yes, this rate is available to those interested in putting down 5 per cent.

Dot #4: Fannie Mae and Freddie Mac, two U.S. organizations started in 1968 as a government sponsored enterprise (although they became privately owned and operated by shareholders) – have a mandate to help Americans to become homeowners by increasing liquidity for housing lending, and where appropriate, taking on risk. These two organizations were bailed out by the U.S. government in 2008 after the housing market deflated and it is estimated that their bailout will eventually cost taxpayers as much as $124-billion (U.S.) through 2014. When the housing bubble burst in the U.S., the value of many houses fell by 50 per cent.

Dot #5: In November, the Economist magazine said that Canada is among nine countries in the world where house prices are overvalued by 25 per cent or more. It went on to say that Canada is one of only three countries where “housing looks more overvalued than it was in America at the peak of its bubble.”

Dot #6: CMHC is Canada’s national housing agency. Established as a government-owned corporation in 1946 to address Canada’s post-war housing shortage, the agency has grown into a major national institution. CMHC backed loans of $541-billion (Canadian) as of Sept. 30, 2011. At that time, the total equity of CMHC was $11.5-billion. This is 2.1 per cent in equity against its overall loan exposure. To put the $541-billion in perspective: If we go back to those imaginary 50,000 couples that bought a $400,000 house and put down $20,000, that represents $19-billion of mortgages.

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