The head of Canada’s national housing agency isn’t done ruffling feathers. Evan Siddall, the CEO of Canada Mortgage and Housing Corporation (CMHC), a state-owned mortgage insurer, fired back at critics this morning. After his confidential email was leaked last week, some members of the real estate industry took to calling his statements “irresponsible.” The CMHC agency responded by drawing a parallel between the US housing industry before the Great Recession. He then added, “vested interests are strongest right before the fall.”
CMHC Accuses “Vested” Interests of Manipulating Buyers
Earlier today, the CMHC head returned fire at the real estate industry’s attempt to make him seem anti-ownership. Specifically, he was referencing the industry’s attempt to skew a letter he wrote to lenders last week. In the confidential letter, he asks lenders to curb their riskiest first-time homebuyers for now. That’s all the industry felt the need to leak.
Notably absent from the letter was almost a page of reasons supporting his concern. In the portion absent, he outlined why first-time buyers and the economy had a lot to lose. Despite this, the industry is proceeding, knowing borrowers have more to lose than the industry. He said this resembles the scenario explained in Reckless Endangerment, making it the first direct government comparison to the US housing crisis in over almost a decade.
What’s Reckless Endangerment About?
Reckless Endangerment is an investigation into how watchdogs tasked with protecting homebuyers, actually exploited them. The book alleges the US central bank colluded with regulators, and lenders to pump home prices higher. Through a series of stimulus measures at the wrong time, they all made out like bandits. In the process, all of these organizations fostered a “see no bubble” mentality.
My private letter of last week was leaked and then twisted and misrepresented by multiple real estate commentators, funded by fees gained from increasing house prices. They lobby for longer amorts and a weaker stress test. Vested interests are strongest right before the fall.
— Evan Siddall (@ewsiddall) August 17, 2020
In other words, they focused on dismissing the US housing bubble. Despite knowing it was risky, everyone in the chain realized they made more money by finding reasons why it wasn’t risky. It worked, until it hit such a high level, that it didn’t. Then it caused irreparable damage to cities like New York, and Los Angeles. You know, places where prices only go up.
How Much Does This Relate To Canada?
There’s a lot of issues that are different, but the approach is very similar. Canadian real estate sales rose to a record level high, in the middle of a pandemic. Unemployment is at the highest level in decades, delinquencies are rising in key markets, and one in five mortgages are not being paid. Still, the industry and government are scrambling to explain away any downside. This is alongside the Bank of Canada, actively looking to entice new buyers by suppressing mortgage rates.
During periods of robust real estate sales, mortgage stimulus isn’t required. You don’t want a single segment of the economy to run too hot, especially if you’ve been leaning on that segment for growth. Unfortunately, we’re seeing the industry assure buyers this is an optimal time to buy. All with the Bank of Canada’s support, during a period of market activity that resembles the downturn of the real estate cycle. Reckless Endangerment sure seems like an appropriate reference to me.
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Nice to see the CMHC head do a 180 on his old policies, from when he said foreign buying wasn’t a thing.
New York isn’t dying. It’s just a temporary downturn due to the virus. People will return from their second homes as soon as it’s over.
New York was dying before the pandemic. Real estate is the slowest of the asset prices, so high end collapsed in 2019, but poor people tend to always think “it’s a great time to buy!”
https://www.forbes.com/sites/jackkelly/2019/09/05/new-yorkers-are-leaving-the-city-in-droves-heres-why-theyre-moving-and-where-theyre-going/#3a8bb5ff41ac
I wonder if the world’s wealthy, owners of several homes in different countries will return?
Has the US lost it’s glitter? Will it ever be the same, and seen internationally as it once was??
Will the US dollar be recognized as the world’s currency as it has been??
Just like a beautiful women after loosing her looks and the desire she once had.. it does not return..so too with the US…trade has gone else where..The US is not even invited to world conferences anymore.
Betting against New York and the USA in THE LONG TERM has been a losing proposition and facing challenges is not equivalent to dying as humans throughout history have been able to adapt.
I really don’t like real estate predators making up reason they don’t understand to say there is no bubble. These people are the problem, thats why we need to take capital away from these predators same reason you take weapon away from children.
Hey stop being selfish and feed on the misery of others, this real estate crisis benefits you but hurts others. People like you dont goto heaven right, full of ill intent and selfish greed. Jebus would certainly not like you.
Are boomers with multiple residential properties vested interest? How about money laundering criminals? How about flippers and speculators?
We need to force these people to sell, this will increase supply fix social inequality.
How? Simple, any family or corporation that owns more than 2 residential real estate properties will be taxed at 10% estimated house value or 10x normal property tax starting with their second home.
Solution is obviously, no real action because the government is part of vested interest. Time to investigate real estate and political corruption.
Yes that is the obvious solution, force speculators and hoarders to sell. But look at what the government did during the pandemic. The first thing they did was to prop up housing via mortgage deferrals and free money along with taking all the sub prime off bank balance sheet.
The government is part of the problem, not the solution. Democracy is not working when the government steals from the have nots and gives to the haves.
Time to fight back against this corruption. We need a mass movement of real estate victims and rightous people to organize and start an investigation.
Guys, I just thought of something scary… The government is actually grinding up their young and feeding them to the old in economic terms. Young Canadians are burdened with very high levels of taxation while going heavily indebted to fuel this housing bubble for the boomers. So boomers sit there and get free health care (which young people dont really need) and enjoy blood real estate wealth. By the time young Canadians get old because of all the debt they are going to cancel health care. WOW
Imagine a government that grinds up young people and feeds them to the old. This is fuken scary, everyone should be concerned not just young people. The worst part is these young people dont even realize what is happening to them…. Just wow, this is like a nightmare…
How old are you, Hgbvv?
You just got idea “How pensions works?”
–Young Canadians are burdened with very high levels of taxation while going heavily indebted to fuel this housing bubble for the boomers. —
Define “young”, please, as there are millions of YOUNG Canadians buying condos for living (or two, three for investing) because their motto I heard is “Buy now or lose forever” almost repeating what RE agents told them.
So yes – THEY FUEL BUBBLE.
For Government of Canada where housing (overall FIRE) are approx. 25% of GDP (now, during this pandemic it could be MORE)!
And, last but not least, remember that THEY (young Canadians) HOPE to make huge money on their investment (you know “housing prices only rise”) and relax before they become boomers.
Boomers created the 2008 real estate bubble, not younger generation Canadians. Americans had the common sense to let housing prices fall. Canadian government kept the bubble going as if its some kind of success.
The reality is the government is making lives very hard for young Canadians for decades to come. Time to fight back, time to investigate government and real estate corruption.
First it’s not people creating bubble – it’s Gov and Banks.
They set the RULES how to play THEIR game – interest rates, insurance etc.
People just follow.
But THIS time Canada made even MORE – bringing millions of TFW, Int. students etc. they CREATED supply-demand problem.
Another brick in the wall – AirBnB.
All together – HUGE BUBBLE.
No one government makes anybody lives easy, never – it’s fiction. Dream.
Ever hear of being house poor? Don’t think anyone exactly wins from these astronomical prices. In any event, everyone I know who is really on the property ladder (not in a shoebox condo) was heavily funded by the bank of mom and dad.
If this bubble pops the pains going to be shared across generations right fast.
Medicare’s going to be one of the few things holding Canada back from becoming some walking dead Hellscape.
Here’s what I gathered in the last few months.
We had a Pandemic, made stocks crash to levels that at roughly 2016 levels. took a few months for it to fly back up to all time highs. all because of money printing from the government and lowered interest rates etc.
In real estate, it felt like it didnt even make the market crash, it just put everything on pause essentially, lots of places were not selling where I live, just sitting still, the desperation to accept lower prices did not feel like they were there for the majority. And we had mass unemployment, and small buisnesses closing. I actually seen some that closed and re-opened which was also wierd.
bottom line, I always used to think if we had a black swan event it will most certainly prick the bubble and pop it nicely and this was before we had the black swan event. It didnt happen. It felt overvaled back when I looked for property in 2015. Prices have more than doubled and I am not convinced a crash will return to any levels lower than what I already looked at that time.
Personally I do not see what will cause everything to stop unless people themselves overtake thier governments globally. or if the governments themselves have an agenda to eventually press the crash button which I think thier way of doing it is just going 180 and pump the interest rate sky high to manipulate the market to crash downwards. But again I dont see any of these markets as free markets that move naturally, I think central banks and government control has this fully controlled.
Does anyone disagree? Am I right or Am I wrong? I come here with no bias cult belief of being a real estate bear or bull, I am just trying to make full sense of it all
When you flood the world with liquidity for the last 15 years to “stimulate” demand and support the vast bureacracy that money has to go somewhere,hard and financial assets, there is no mystery here
You hit the nail on the head. What do you think all those deferrals were for? To save people from forced selling and accepting lower prices. And guess what? Those deferrals are being extended into next year.
Guess what, speculators should be forced to sell. Anyone with a second mortgage should not be allowed to defer or get any assistance.
This government is corrupt, time to investigate their wrong doings with the real estate industry.
Real estate is hyper local both in geographic terms and timelines. Anyone who has been actively buying real estate in Canada (this includes realtors, and investors like me) over the past 20+ years will be able to clearly articulate that real estate does drop in value and usually in a dramatic way and we will be able to tell you exactly when and where it happened (unless they are trying to sell you a home). If you are a first time home buyer in the past 10+ years, this may sound odd to you, however, it doesn’t change the fact that it happens, and it usually looks similar to today. If you buy less home than you think you can afford, carry no debt, maximize RSP and TFSA savings, and can comfortably hold your home purchase for 10+ years on one income, you will weather any economic storm that comes along (even a pandemic). A robust and stable real estate market benefits everyone, young and old, whereas a speculative market benefits only the well informed and lucky. The challenge is to not confuse luck with being well informed. Those of us who understand this are simply trying to provide some historical perspective for the next generation, because we were once that generation.
“real estate is hyper local”
[laughs in credit analyst]