BACKPEDALING
Just over a year ago, as the pandemic began, we posted about how the Canada Mortgage and Housing Corporation (CMHC) was predicting an 18% decrease in housing prices when virtually everyone else was predicting price increases.
At the time, we collectively scratched our heads and wondered where this was coming from. Did CMHC have a dataset that nobody else could see that warranted this prediction?
The primary role of CMHC is to provide mortgage insurance for Canadians that had less than 25% for a downpayment or didn’t meet the qualifications for a conventional mortgage. For many years, CMHC was the sole provider of this insurance – and up until this past winter had over 50% of the market for insured mortgages. The two other companies in the mortgage insurance market are Sagen MI Canada (formerly Genworth) and Canada Guaranty Mortgage Insurance Company – private companies that, in the past, have been in competition for less than half of the market share.
Mortgage insurance companies essentially underwrite the risk that borrowers (home buyers) will be able to pay the mortgage. They set the rules in terms of affordability and qualifying for a mortgage. If you have less than 20% downpayment, you need to qualify for an insured mortgage where the rules will be a little more stringent than with conventional financing.
Historically, these three insurance companies had been essentially using the same set of rules – until, that is, the CMHC decided that it had the power to unilaterally move the market.
Evan Siddall, the former CEO of CMHC, had been very vocal about where the Canadian real estate market was headed, and how it needed to be reined in.
In July of 2020, CMHC announced that it was imposing stricter qualification requirements that would make it more difficult for borrowers to qualify for insured mortgages. Just over 40% of all mortgages in the Canadian market require mortgage insurance.
Not an insignificant number!
It’s not a big stretch to believe that a company with more than 50% of the market could think that it would be able to set the tone and direction of the market. CMHC certainly had that power and position many years ago, when they were the only insurer in the market.
As a federally owned company, it’s also not hard to see that it is a policy arm of the government, as well as a revenue source.
When the market started to pick up in 2019 and then COVID hit, I think CMHC saw this as an opportunity to bend the market. Start with a dire prediction, tighten up lending rules, and expect the other market players to follow suit.
That’s not quite how it played out.
Sagen MI and Canada Guaranty did not adjust their underwriting rules and instead continued to service lenders, growing their market share significantly. The result, CMHC has lost more than half of its market, dropping from over 50% to 23% market share – and a massive drop in revenue and profits to the federal government.
The results today: no noticeable change in the market as the other companies picked up the business, and no significant change in the amount of mortgages being funded. CMHC acknowledges that it made a mistake, and has recently revised their underwriting rules back to what they were a year ago.
A lot of huffing and puffing, and nothing directed at the source of the problem, namely the supply of homes available.
Perhaps CMHC should go back to their roots and proactively use its power to fund and promote making additional housing units available to the market.
They’ve done it before.
Most of the housing stock around the Paisley Road area, those “wartime” storey and a half homes, were built with CMHC funding and affordable designs to service the demand for housing from returning Veterans of the Second World War.
Yes, municipalities would need to be involved, and the development process streamlined. Reducing the time and expense required to create new developments will help build inventory levels and satisfy demand. A simplified version of a complicated solution.
Manipulating the market and trying to manage demand rarely works in the long term. Perhaps it’s time the resources of CMHC were redirected to managing the supply side of this market.
Just a thought.
We’ve released a special Centre Wellington edition of our Q2 Market Report, featuring numbers from Fergus, Elora & rural Centre Wellington, plus breakdown by home type. Find it below:
THE PAST WEEK IN THE GUELPH REAL ESTATE MARKET
56 homes sold this week, typical of this time of year. 68% of homes sold at or above list (38 of 56) – a drop from the near 100% of homes we were seeing earlier this year. At the same time, the median sale to list price ratio remains in favour of sellers at 104.2%, with homes selling between a range of 95.7% of list price to a whopping 136.7%. Take a look at the full key week comparison below:
View the new sales reports at soldinguelph.ca
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Find our full JUNE 2021 MARKET REPORT below:
This monthly report includes:
Year-to-date and quarterly stats for Guelph, Kitchener, Waterloo & Cambridge
Sales stats for all Guelph home types
Price breakdowns for all 18 Guelph neighbourhoods
Township comparisons: Puslinch, Guelph/Eramosa, and Centre Wellington
Freehold & condo breakdowns for Guelph, Kitchener, Waterloo & Cambridge
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