Ottawa has been trying to de-risk the housing market since 2008. But all of the mortgage rule tightening since then has only slowed the market for a few quarters at a time. Home prices are still near record highs and sales have rebounded.
It’s not surprising then that officials are taking another step that slows mortgage growth. On Thursday, CMHC imposed limits to the amount of government-guaranteed mortgage-backed securities (MBS) that a lender can sell to investors or hold on its balance sheet.
Terminology: “MBS” are pools of mortgages that lenders sell to investors to raise money to lend out. The government guarantee lowers the return demanded by these investors, allowing the lender to offer better rates and terms.
This move could lead to a 60% drop in NHA MBS issuance through year-end. That will force banks to find other more expensive ways of funding a significant portion of their mortgages. And since banks rarely eat material cost increases, consumers will pay higher rates than they otherwise would.
Click here for the full CanadianMortgageTrends.com article.
Over the past three years, Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney (now Governor of the Bank of England), tightened mortgage lending in an effort to avert a housing crisis that may otherwise result when interest rates rise.
While their efforts were laudable, they missed an equally great threat that is now on the landscape: The potential of extreme weather to render large sectors of the Canadian housing market uninsurable, which, in turn, could impact the mortgage market (without home insurance, you can’t qualify for a mortgage).
So, how can extreme weather, primarily in the form of torrential rain and flooding, threaten Canada’s insurance and mortgage market?
At first glance there wouldn’t seem to be a problem. To illustrate, as extreme rain of the type recently seen in Calgary and Toronto continues to flood basements en masse across Canada (and climate models point directly to this future), insurance companies could offset claims by raising premiums – homeowners may complain about higher premiums at first, but soon they would capitulate. Unfortunately, there’s one lamentable flaw in this argument – homeowners don’t have an endless supply of disposable income, as Flaherty perpetually reminds us, and at some point higher insurance premiums will become cost prohibitive for homeowners, which, in turn, will impact home sales and the mortgage market.
Click here for more from the Globe and Mail.
In my 25 years in the branding and advertising business, I’ve attended a ton of trade shows across North America. Sadly, most of them are time-consuming, boring as hell and of dubious value.
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Click here for eight ways to stand out at a trade show courtesy of Profit.
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Results will be published in the September issue of CMP.