Canada’s national housing agency wants to remind people there’s a limit to what they can do. Evan Siddall, CEO of the Canada Mortgage and Housing Corporation (CMHC) updated Canada’s standing committee on finance. In the update, he explained how the CMHC is using tens of billions in capital to support real estate markets. Even so, they warned first-time homebuyers to be prudent with their investment. The organization can help lower risk, but can’t eliminate it. Consequently, they expect prices to make substantial declines in the near-term. Here’s the most important insights from that speech.
The CMHC Will Support The Housing Market
The CMHC is on an epic journey to try to contain the damage the economy is inflicting on home prices. They reiterated they are ready to buy up to $150 billion in mortgages, expand securitization, and extend deferrals. Currently they estimate 12% of mortgages are on payment deferral. They expect this number to rise to 20% by September. In other words, this is a huge (and expensive) operation they are undergoing. However, they warned their “support for homeownership cannot be unlimited.” After all, if the organization incurs substantial losses, it will require taxpayer help. Who wants higher taxes because Joe Vancouver put 5% on a 300 sqft condo at nearly a million dollars, thinking it can never go down in price? Probably not you.
Canada’s First-Time Buyers Warned To Think About Debt
The agency also stated they “need to avoid exposing young people” (and taxpayers in general) to losses. As a cautionary tale, Siddall explained a scenario for a first-time homebuyer forced to sell. If that buyer bought a $300,000 home with 5% down, they stand to lose $45,000 on an investment of $15,000 if prices fall just 10%. They further added those numbers include insurance, and the cost of selling. To contrast, they note a 10% down payment could better help that person ride out a downturn.
I know what you’re thinking – where can I buy a $300,000 home? Not the point, but most selling costs are relative. Scale that number to whatever you like, the point is a buyer with just a 5% downpayment can lose more than the 5%. There’s insurance, selling fees, and the difference in the price if underwater.
Canadian Real Estate Prices Expected To Drop Up To 18%
The 10% downturn isn’t unrealistic either, since they’re forecasting that on the low end. The agency is now forecasting the average house will see a decline of 9 to 18% over the next 12 months. The organization previously stated prices will drop, and won’t rise to their 2019 values until 2022 – at the earliest. They haven’t officially released a full forecast yet, but from statements made, the organization’s internal forecasts appear to be in-line with other non-bank forecasts.
The CMHC is delivering general risk advice that can be summed up as don’t take out too much debt. The higher the debt load of a household, the more vulnerable you are to a downturn. This downturn is expected to be the largest since the Great Depression – so it’s probably time to buckle down. Although they did give first-time buyers common advice, it’s hard to get a generation of people to understand risk, if they haven’t seen a downturn. Equity traders call this “market tuition,” since most people won’t learn about risk until they lose a substantial amount of cash.
Like this post? Like us on Facebook for the next one in your feed.
Can you avoid moral hazard, if your organization is one of the institutions responsible for moral hazard?
@Trader Jim
Don’t go rocking the boat!
Even if you’re perfectly right 😉
Scroll through some of the forums. You can’t believe how much leverage some people have taken out over the past few years. Leverage, upon leverage, upon leverage.
All with the intention the government will squeeze taxpayers if there was a downturn. Corporate recklessness was carried down to mom and pop investors.
I recall that back in 2018, the Bank of Canada was allowed to start buying Canada Mortgage Bonds. In that case, can’t our PM / ex-ski-bum basically just Macgyver the money printing machine directly up to CMHC? Nothing can possiblee go wrong!
So CMHC has finally realized there is a down side to real estate…Wow who would of thought that/
CMHC has actually been warning for years about the disconnect between fundamentals and reality, and how they can’t even be close to justified in Toronto.
CMHC has been fuelling that disconnect.
“I know what you’re thinking – where can I buy a $300,000 home? Not the point”
Actually yes, that IS the point, no house in Canada where it’s frozen 7 months out of 10 is worth more than a house in sunnier climes. Stop drinking the kool – double/double
There is no value in it, none. this is just a pump and dump game orchestrated after 2008, we think we’re so clever and that we could avoid a recession…
Next debate whether a pound of bricks or a pound of feathers is heavier.
The public has one last opportunity to disband and remove this tax payer funded entity acting as the borrowers PARENT. If there is a problem run to the government but no one asks who is the Government? It is the taxpayer.
These CEO’s of many of the Crown Corps who forget they are no more than an unelected Civil Servant.
He is dead wrong in his advice in which he mentions “Even so, they warned first-time homebuyers to be prudent with their investment.”
Goes to show how mis informed he is to call a home which has been purchased using 95% leverage! It NOT an Investment, period.
It is a LIABILITY of the owners and an ASSET of the lender.
It is not too late for those who have spared themselves from falling in this trap.
And the CMHC boss has the audacity to say that the tax payer will have to come to the rescue if things get any worse then they are currently. Clearly, this organization has served its its usefulness and no longer required and must be disbanded.
Why should the prudent folks who have been saving for a long time to build a down payment but just can’t get their foot in the housing ladder because thanks to the CREA, and their members, BoC, Bankers continue to keep lending more and more for the same house as it keeps being flipped. Nothing ever changes to the property, or the area it is located in but the Realtors keep valuing the property higher and higher as it changes hands . The excuse is always oh there is a shortage of housing, oh there is not enough land, really Canada is the 2nd Largest country in the world in land mass and has the lowest population per square kilometer.
I totally agree with Manoj. People who have been on the sideline, watching at the madness that is the real estate market in Toronto, should NOT be penalized. When you decide to buy a house with minimum down payment, likely, you cannot afford to buy a house. But like every Joe in Canada, people think that the Government [tax payer] is there to bail them out. Unfortunately, the housing market is such a balloon that if that were to collapse many, many people and banks would be affected. Regardless, when you invest in any business proposition, the risk is yours to take. How many Canadians have flipped their properties and made quite a hefty sum out of the transaction? How many invested in houses and rented it out as Airbnb? Time has come to realize a loss now and pay for your recklessness.
CMHC is a racket that enables banks to profit from securitizing sub-prime mortgages by the hundreds of billions and forcing taxpayers to insure that junk at below market rates.
Private insurers are kept out of the process lest price discovery occur on the enormous risk taxpayers are being handed by insuring tons of mortgage garbage at ultra low premiums.
Banks which create these sub prime garbage loans do not want to insure any of it themselves and insist taxpayers insure it via CMHC “to promote financial stability”.
CMHC will “support the housing market” means losses on sub-prime mortgages banks profited from creating on the way up are being dumped on taxpayers on the way down.
Want to support the free market pricing of homes? Get rid of CMHC and make banks eat the loss on defaulting garbage mortgages they profited from creating. So get ready to pay for banker bailouts and bonuses…..opps I mean supporting the housing market and financial stability.
Does it matter if CMHC is a racket that enabled banks? They’re literally telling the public the issue, and the public is ignoring it.
If McDonald’s sells you hamburgers, and provides you with the nutritional info that shows it’s junk, is it their fault if you eat it everyday?
Yes it matters that CMHC is a racket because taxpayers are forced to pay for defaulting mortgages banks profited from creating. There is no option of not insuring this garbage that the individual taxpayer can opt out of.
The insurance payout when these sub-prime mortgages default comes in the form of bailouts OR as an inflation tax to pump up real estate prices beyond its free market valuations. Either way banks profit and taxpayers, wage earners, savers and pensioners are made to pay for it.
Your McDonald’s analogy is incorrect. CMHC does not give the taxpayer the option of not insuring hundreds of billions of sub-prime mortgages. It forces taxpayers to insure that junk at premiums that do not reflect the massive risks of default. It knows full well this is garbage banks are dumping on taxpayers and facilitates it.
It would be a different story if banks were on the hook for the bad mortgages they profit from issuing – which is exactly the moral hazard CMHC promotes.
The real question is whos interest is CMHC operating in? It’s turned into a vehicle of crony capitalism to profit banks using gobblygoop explanations of benefitting the economy/taxpayer.
I’d like to force taxpayers to insure me against all losses on my gambling trip to Vegas for $2 per day. I’ll pocket the winnings, and I’ll collect from the taxpayer if I lose. Where can I sign up for such a CMHC style deal and pass it off as being for the good of the economy/taxpayer.
CMHC makes money and sends $$$ into the Fed Govt.
No taxpayers have bailed out anyone…
The CMHC actually said they would need taxpayer help. This isn’t a conspiracy, they need to draw on more revenue than they’ve given. Many years, likely.
I agree with you completely.
To hell with CMHC. When are you going to talk about this stupid stress test? You Ms Sheila can say anything because maybe you are fortunate and your parents can go on the house they bought for $45,000 and get you money. Some of us not that lucky. When you have to fork out $2800 to pay someone rent for their investment. I would prefer to pay my own and sit out the house price for another 10 years with the
hope of seeing back a little of my money
Does McDonald’s force people who DON’T eat at McDonald’s to insulate and bail out those that DO from the consequences of their decision to consume Big Macs? No? Then your analogy is not sound.
We better start writting to our Permiers, local MLA’s and Federal MP’s about our disappointment. Get their email addresses from the government website. If enough of us Express our frustrations just like everyone is posting here and then they will be forced to listen and change their tactics. We have to be clear that if they continue on the current path of bailing out failing busineses and speculators. We are not going give them our votes in the next elections.
Excercise your power at the ballot, it is the one and only thing we can do.
Some major changes must also have to come about.
In order to stand for MLA or MP seats, the candidate must have experience of having been either a CEO or CFO of large business which employed at least 1000 people.
Currently, as it stands. When you apply for a job they expect you must have a degree of some sort.
For politics today, you dont need any qualifications! And this is why we are in the mess we find ourselves.
Politicians depend on the so called EXPERTS. Whom in most cases are for the most part academics. They have never run a business. They have spent their entire life in Academia. They have no clue of what it is like to survive in the real world.
Central Bankers also need to have experience of having run large corporations. Just having an Economics PhD from Oxford will not do.
The Bank of Canada, despite its charter of being an institution to serve public interests, has been turned into a Federal Reserve style country club for private banks. Just like CMHC, it’s now a vehicle for private banks to dump massive gambling losses from real estate, derivatives and other speculative bets onto the nation. All that is justified by wrapping the bag of turd up with the flag and claiming the privatization of profits and socialization of debts by banks is for the benefit of the nation.
It’s the strongest reason why the power to create money should not be in the hands of govt. Inevitably such ominous powers attract the tentacles of entities that use it as a means of profiting themselves through foul means.
It corrupts the political system and turns academics (who are supposed to be guardians against such idiocracy) into cheerleaders for crony capitalism through grants and perks. More worryingly it even corrupts the judiciary which sits by quietly and does nothing to rule against such theft.
It’s no coincidence that both Bank of Canada
and CMHC chairman are retiring at the same time after leaving taxpayers with massive liabilities which will either be paid with bailouts or inflation. Likely both.
What a scam.
They reiterated they are ready to buy up to $150 billion in mortgages
This money comes out from pocket of taxpayer and goes to the bank which take risk and without really check the income of borrower because they know if mortgage fail they get their money from bank.
That is how they pump of the house price and make life hard for average people which they have to
spend most of their hard working earning on housing.
Debt is imaginary. Central banks can print as much money as they wish and they can reduce debt as much as they want; they call it “tapering”. The entire purpose of money is to motivate people to work (someone has to milk the cows, repair vehicles, prepare meals in restaurants, etc). Inflation is stable, printing too much money does not affect inflation (we know this from multiple Quantitative Easings in the United States).
The government will continue to bail out the real estate market even if CMHC were to halt the backstopping. They’ll set up further deferrals with banks, payment programs, etc. It is too large of a percentage of GDP for them not to do everything humanly possible while spending the taxpayers money.
Maybe I’m missing something but as the late, great Clara Peller used to say “Where’s the beef?” I’m not seeing any big jump in mortgage defaults and real estate prices have not fallen in any significant way. So far, CMHC and by proxy the taxpayer is on the hook for bupkis. Could it happen? Maybe or maybe not. I could make a very convincing argument that prices will go up in the fourth quarter, but it’s far too technical for this discussion.
We should all thank CMHC for their professionalism and skillful management of the mortgage market. They’ve helped create more wealth for the average homeowner than any other investment vehicle.
I don’t think you understand the difference between being on the hook for something and actually having to pay up.
The CMHC and taxpayers are most certainly on the hook, they just haven’t had to pay up. Yet.
Please make an argument for fourth quarter increase. I’ve been waiting all week for a good laugh….
Go for it!
Not sure if you read the article but 12% of mortgages are on deferral with that never going up to 20% by Sept. We’ll see whether these non payment of dues are going to be paid back with interest by the mortgage holder. If it’s not, it’s going to be dumped onto the back of taxpayers or inflated at the cost of savers, wage earners, pensioners. On technical grounds alone 12 let alone 20% unable to meet mortgage dues is a massive number.
Second CMHC has purchased 150 billion of sub prime garbage at 100 cents on the dollar from banks. It’s worth nowhere near that amount and that means the loss is billed to the taxpayer.
Third CMHC has suspended dividend payments on their mortgages portfolio to the govt indefinitely. Loss again is billed to the taxpayer.
Fourth is the “support payments” govt is making and will keep making to the unemployed i.e those who cannot make mortgage payments. That money will be going largely towards mortgage payments meaning taxpayers are being tapped to pay sub prime mortgages.
Fifth is the coming inflation tax and other taxes to pay for all these sub prime garbage bailouts.
In light of the above, I’m not sure you understand the moral hazard taking place when you say *you’re not seeing any mortgage defaults”. It’s been nothing but bailout by all means with taxpayers being made to pay billions of dollars to hold up garbage mortgages and we haven’t even begin this journey yet.
As for wealth being created for the home owner, it’s nothing but a leveraged asset bubble that has been created with the taxpayer being used as a backstop.
well said
Hey lets have tax payers bail out real estate speculators and use young people as an excuse to maintain high housing price. Since young people are the worst victims of high housing prices, this is the most shameless display of disfunction of our system.
Let the housing bubble pop, let the prices fall, let speculators get wiped out.
Canada is a failed state.
GHL my man, you are correct. Canada who I stand for “is a failed state” unfortunately!
Prepare for a dumb money rebound in September. Lots of people waiting for the dip. Patience young grasshopper ☯️
The CMHC could have avoided this problem by agreeing to only insure a home purchase up to three times VERIFIABLE income. Anything above that was up to the bank whether they wanted to lend you the money or not. My guess is that if they were on the hook above that amount they would be a little more circumspect about lending to you. As it stands, the mortgages that the banks are going to be dumping on CMHC are going to be the uninsured mortgages where there is a chance that they will take a loss on a default. The banks will keep the insured mortgages because they will not lose a penny if the mortgagee defaults. If you want to treat your house as an investment, then be prepared to take a loss when prices head south. I’ve lost money in the stock market during this Covid-19 pandemic, but I am not expecting the government to bail me out – or should I?
The Fed and BOC did backstop the stock market with liquidity. That’s the taxpayer that prevented you from greater losses.
“I know what you’re thinking – where can I buy a $300,000 home? Not the point..”
First, NO you don’t know.
Second, why not just use actual, relevant figures so people don’t get hung up on this and will actually relate? You obviously know RE stats, data, average housing prices etc. Source that! It’s not that difficult, really. And actually, it IS the point since you’re talking about money and trying to advise people so be realistic and relevant!
Did it. I found the dumbest guy in the room.
Government (CMHC) to banks: Give out as many mortgages as you can!
Banks to Government (CMHC): But what about those high risk mortgages? We don’t want to give out mortgages worth more than 80% of the value of the property.
Government (CMHC) to banks: No worries, we’ll insure those high risk mortgages for you. Go give mortgages to anyone that has a pulse!
… defaults rise…
Government (CMHC) to taxpayer: Sorry buddy, here’s your bill, you gotta pay for all this.
I’m happy Evan Siddall at least has the cojones to tell the government their housing policies are what got us here in the first place but I don’t know why CMHC was ever allowed to insure asset backed securities and the riskiest ones at that. CMHC should be dismantled and the high loan to value, high risk positions given back to the banks. When bank shareholders see that level of risk on their balance sheets watch how quickly they start to restrict credit and tank the housing market themselves. As taxpayers we are not given the option to refuse to insure those high risk assets via CMHC. Sad ponzi scheme this country has built.
To SH: Actually Canadian Taxpayers are forced to subsidize the bad nutritional choices of people who eat too frequently at McDonald’s etc…Drug addicts, alcoholics, smokers… and everyone who leads self-destructive lifestyles thru socialized medicine. Comparisons can easily be drawn between CMHC and all our socialized health care system.
Hey people!. Taxpayers have been paying dearly since the beginning of this century. You don’t see it because everything is hidden behind the curtain.
People have to realize that the working class or as the Libs like to put it the so called Middle Class. Their taxes have kept rising, both direct and indirect taxation. Health care services are being rationed (waiting lists growing). No new money for schools, roads, bridges in general (infrastructure of the country is crumbling). While the likes o big corporations being handed out billions not to mentions the scandals the PM was involed with SNC Lavalin. The CMHC continue buying up sub prime mortgages off the balance sheets of the chartered and private banks to prop up the housing industry with the help of BoC artifically keeping interest rates at zero for over 10 years. Punishing the hardworking savers and pensioners who have to depend on fixed incomes.
If you put some of the above points into context you will begin to see how it has been affecting the taxpayers meaning it equates to your own and your next generations quality of life degrading every passing year! While the risk takers who don’t have any skin in the game get rewarded each time their is any kind of financial crisis.
Recently, in BC the insurance rates of Strata Corporations spiralled out of control and the speculators were trying get out and they could not sell their condos and they were quick to come on TV and cry out for help from the Government without which the values of their assets would collapse. Its almost like these days the Government has become the PARENT. The politicians must realize that this simple cant keep goi ng on any longer and it has to stop!
In great part realtors have driven up markets, enriching themselves beyond moral decency. They refuse to convey low offers from potential buyers to sellers! Calling it a “bully offer”! They manipulate the markets. “Free” what-is-your-house-worth’s enrich themselves with staggering rates of pay (do the math) while fighting to tag their “celebrity” faces to your hearth. Yes young people have no hope, no wonder they rather live the streets in downtown core, sweetening the stark realities of an impossible humane future with cheap lethal drugs.
Expose the elephants in the real estate room.