Tag Archives: national housing agency
Analysts Waver; National Housing Agency Denies Major Problems
Courtney Tower – Market News International
High up in housing, in the condominiums of some of Canada’s largest cities, there may or may not be overheating and corrective troubles ahead. Down on the ground, in single-family dwellings, no Canadian market correction looms. These are the disputed prospects in the wake of new housing activity data.
Comment: And the funny part is that condo prices are moderating here in Toronto, while houses are going crazy. Some neighbourhoods have 70% of houses for sale going for over asking. That would be the soft and slow correction everyone is talking about – for condos.
Most analysts have argued that Canada is not at risk of anything like a United States-style crash in housing, but some now seem to be wavering while others continue to see activity ratcheting down gradually.
Comment: Anyone looking can see it. Vancouver is slowing down, Toronto condos are moderating. Time for a deep breath and some relaxing.
Canada Mortgage and Housing (CMHC), the national housing agency, took the step Tuesday of denying in a report specific concerns cited by Finance Minister Jim Flaherty that Canadians may be over-mortgaged or that CMHC’s mortgage insurance and securitization practices flirt with danger.
Opinions differed followed CMHC’s monthly report Tuesday showing housing starts in April surged by 14% to a seasonally adjusted 244,900 units from 214,800 in March. It was the highest level since pre-recession days of September, 2007, and was all about condos. They made up by far most of the increase.
Comment: Sure, lots of condos are being built, but the increased supply is moderating prices – just as simple economics would expect. Condos in Toronto have become the new rental market, a big driver of the new development sales. That and ever-rising prices are pushing first time buyers into condos as opposed to houses. People want to live downtown, close to work for a shorter commute, and near to the restaurants and bars they like to play in. It really is not surprising. As the city evolves, the core becomes more and more appealing for more and more reasons.
Single unit starts, which analyst Dina Cover of TD Economics terms “a more stable indicator of the overall health of the housing market,” edged up 0.6% to reach 67,700 homes at an annual rate seasonally adjusted.
The day before, Statistics Canada reported that home building intentions for March dropped by 1.3% to $3.9 billion at the seasonally adjusted annual rate, for this sector’s third consecutive monthly decline. Taken month over month, single family dwelling permits fell by 1.7% in March from February.
David Madani, Canada economist for the international firm Capital Markets, has long been one of the few predicting a savage housing market correction of about 25% over an undefined period of time and starting at an undefined time. He told MNI the April starts only confirm his view that the housing market “is out of control” and headed for a deep correction, at some time ahead.
Comment: What? There will be a correction at some point, lasting some sort of time… that is truly the stupidest “prediction” I have ever read. It is also impossible. Given an indefinite amount of time, all prices rise. It is called inflation. Cars, chocolate bars and houses – they all cost more today than they did 10, 20 or 30 years ago. Houses will NEVER drop 25%, not over any period of time.
Other analysts are not so sure. Emanuella Enenajor, at CIBC Economics, told MNI she expects a drop in starts shortly from April’s elevated numbers, but no large fall for Canada’s housing market this year at least. The market would be held up by continuing relatively strong Canadian economic performance overall and rising employment, she said.
Comment: There might be local dips, and Vancouver could drop significantly. That would affect the national average and send people running screaming for the hills. But it would mean nothing in most local markets.
The April surge in starts has the effect of “putting to rest any doubts that Canada’s housing market, at least in certain sectors and cities, is at risk of overheating,” Robert Kavcic, economist at BMO Capital Markets, wrote in a research note.
“The bubble-mongering that has been going on seemed overplayed for sometime given that housing starts were running only slightly above household formation (about 180k) on average, for the past three years. But that is no longer true, with starts now moving well above underlying demand, and accelerating in recent months,” he added.
Comment: Could that not mean that starts were behind household formation for a while and being just above for 3 years did not do enough to satisfy demand? If no one needed the housing, why would it be built? In Toronto, owned properties are all occupied and rentals are running around 1.3% vacant. So housing demand is so strong that (using the 50-50 rental to owned ratio) less than 2/3rds of 1% of Toronto housing is vacant. We are talking 0.65% – or less. That would strike me as extreme demand.
Kavcic noted that “the trend away from building detached homes in favor of condos continues unabated, particularly in Toronto, Vancouver and Montreal.” His bottom line: “There’s little question now that Canada’s residential construction sector is heated, with the big-city condo market boasting the highest temperature.”
Comment: For so many reasons, from price to good urban planning. Look at all big cities, world cities even, and see the density of housing in the downtown core. Toronto is just catching up.
Jonathan Basile, economist at Credit Suisse in New York, wrote that the April starts are “the first housing indicator to get us worried about a correction.” Credit Suisse, he said, “lean in the correction camp.” The correction would come from the multi-unit sector.
Comment: Seriously? People have been whining and worrying about the Toronto condo market since I first started reading about it in 2003. And that is just when I remember noticing it. And for 10 years now, Toronto keeps getting new condos. For half that time we have 140-some-odd projects on the go. We did in 2006 and we do now. Big whoopee, this is not new and certianly is not news.
Basile noted that multi-unit starts were 65% of total housing starts in April, “well above the long-run average of 42%. There was only one other episode — late 1981/early 1982 – when multi-unit starts made up such a large share. What followed was a sharp correction.”
Comment: But the long term average also includes the period of intense urban sprawl. That trend is reversing and much more housing is occurring vertically and not spread out across the fields. The long term average is moot in this case, as housing trends completely change. Look at condos in the 905 – where once was only houses, now there are towers. Not seeing that is incredible.
Dina Cover at TD Economics said the multi-unit surge probably is not sustainable and there could be “some give-back in the coming months.” However, Cover expected that overall homebuilding activity should remain healthy this year“as builders work to complete projects before the Bank of Canada begins to hike interest rates – a move we expect to take place in September.”
Kirsten Cornelson, economist at RBC Economics, said high pre-sales of urban multiple units in 2011 indicate “that strength in the housing market is being supported by increases in demand.” Nonetheless, she said, RBC expects “that there will be some easing in the coming months to a more sustainable pace of growth.”
Comment: Shocker! All of these condos are being built – wait for it – because people want them! And are paying for them! Who would have thought…
At the same time, CMHC authored a comeback, without directly saying so, against Canadian Finance Minister Jim Flaherty’s assertion that he has been worried for some time about the amount and quality of CMHC insurance of home mortgages, and about CMHC’s securitization of mortgage packages.
Flaherty put the insurance and securitization activities of CMHC under review by the Office of the Superintendent of Financial Institutions (OSFI) and put OSFI on CMHC’s Board of Directors.
Karen Kinsley, CEO of CMHC, said in the 2011 Annual Report that the agency turns a high profit on its mortgage insurance portfolio without cost to the taxpayer. Mortgage loan insurance “accounted for most of CMHC’s net income of $1.529 billion, which helped improve the Government of Canada’s fiscal position,” the report said. CMHC had turned over to the federal government $16 billion since 2002, it said.
Comment: For all those worried about everyone tanking and needing a bailout from the CMHC – read the paragraph above again. And again. Their NET income last year was over $1.5 billion. They MADE $1.5 billion. Because we don’t default on our mortgages. They have enough money that they have given the feds $16 billion in the past 10 years? With and average property price of $350,000 and 10% down, that means they have insured 2,539,683 mortgages without a single problem. Who is worried about our real estate market? In the US during the peak of their meltdown, they had default rates in the 30% range, some areas up to 60%. We are more than 75-150 times lower than that, at 0.41%. And with a population 10 times lower, than means 750-1,500 times fewer absolute defaults. Three orders of magnitude lower. And that is why we cannot be compared to the US.
CMHC maintains “more than twice the minimum capital required by OSFI” of mortgage insurers, and so is “well positioned to weather possible severe economic scenarios.” Answering concerns that homeowners are becoming over-extended, the report, and a media briefing by conference call with CMHC officers, said “the majority of homeowners loans have strong credit scores” and households manage their mortgages prudently.
Comment: A Toronto mortgage broker recently released a study showing their average applicant made $125,000/year and wanted a loan of only $262,000. And consumer debt is growing at essentially 0%, the lowest rate since 1992.
The briefing said 75% of high-ratio loans approved were fixed rate mortgages,” when a major contention of critics is that when rates inevitably rise from their extended lows many households will be very vulnerable.
Comments: Yet another reason why the “run for the hills because mortgage rates are going up to 93%!!!” arguement does not hold much water.
The average outstanding loan amount per household was $162,157 in 2011, and the arrears rate for all CMHC-insured loans was 0.41%, they said.
Against concerns that CMHC is nearing its limit of C$600 billion in the worth of mortgage loans that by law it is allowed to insure, the agency said total outstanding loan guarantees in force come to C$362 billion.
Comment: Wow… that is not even close. That is just over half. And they make $1.5 billion a year.
CMHC is by far the largest insurer of home mortgages in Canada and says 46.5% of that business is in insuring mortgages the private sector tends not to insure, including large multi-unit rental properties such as nursing and retirement homes and homes in rural areas and smaller communities.
“A total of C$116.7 billion in securities backed by insured residential mortgages was guaranteed by CMHC in 2011,” the agency said.
House prices in Canada do not exceed levels supported by underlying factors such as high immigration, growing incomes, low interest rates, the CMHC report said. “Based on these and other characteristics, clear evidence of a bubble is lacking,” it said.
Comment: And that, my friends, is the sum of it.
Contact the Jeffrey Team for more information – 416-388-1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.