The way Jim Flaherty sees it, his July changes to Canada’s mortgage rules are having the desired effect on the housing market.

 Housing cools

Canada’s housing market continues to cool markedly, with sales plunging 17.4 per cent in December from a year earlier. Prices, however, still held up, with a gain of 1.6 per cent from December, 2011.

On a month-over-month basis, sales were little changed from November, the Canadian Real Estate Association said today. New listings slipped 1.3 per cent from November as home sellers pulled back.

The MLS Home Price Index, which factors out changes in the types of properties sold, rose 3.3 per cent from a year earlier, marking the slowest growth since April, 2011, The Globe and Mail’s Tara Perkins reports.

For 2012 as a whole, sales of 452,372 slipped 1.1 per cent from a year earlier, and were 1.4 per cent below a 10-year average to 2011.

Sales in December fell in four of every five housing markets measured, the real estate group said, with Calgary the standout exception.

Canada’s housing market can best be plotted on two timelines: pre-Flaherty and post-Flaherty. And for many, the post-Flaherty era is a good thing.

Sales have slipped since Canada’s Finance Minister Jim Flaherty brought in new mortgage restrictions in July in an attempt to engineer the slowdown we’re now seeing, and most observers expect a soft landing, not a crash.

“National sales activity continues to hold fairly steady at lower levels since mortgage rules were changed earlier in 2012, but there are still some real differences in trends between and within local housing markets,” said CREA president Wayne Moen.

The Toronto area saw the biggest drop in New listings, the group said, but they also slumped in fully half of all markets, including, and as expected, the Vancouver area, the Fraser Valley and Vancouver Island.

Vancouver, in particular, has taken it on the chin, and observers believe it is the one market to have gone beyond a soft landing.

“The decline in new supply may reflect purchase offers below asking price that are made to sellers who are under no pressure to sell. Instead they choose to take their homes off the market once their listing expires,” said CREA’s chief economist, Gregory Klump. “In the absence of economic stresses like a spike in interest rates or a sharp drop in employment, this dynamic can be expected to keep the housing market in balance.“

Home sales are expected to continue at a lower level, as is construction of new homes.

The average price in Canada still climbed to $352,800 in December. If you take out Vancouver and Toronto, CREA said, the national average would be 3.3 per cent.

“Canada’s housing market is clearly in correction mode as we had been warning would occur well before the figures began to roll over,” Derek Holt and Dov Zigler of Bank of Nova Scotia said before the CREA report.

As for inventory, the supply of unsold homes would take almost 7 months to deplete, but that hasn’t changed much since late 2010, said senior economist Sonya Gulati of Toronto-Dominion Bank.

Ms. Gulati expects the market will stabilize now over the next few months, and that the impact of Mr. Flaherty’s changes are now priced in.

“When looking at previous mortgage rule tightening episodes, the housing market impacts have been temporary in nature,” she said. “There is no reason to think that this time will be any different.”

Both the sales-to-listings ratio and the timeline for unsold inventory are within a normal range, she added, though at some point prices will slip.

“When we compare prices to other standard metrics like price-to-income, we still believe that prices have deviated from underlying economic fundamentals. With this in mind, house prices will likely resume their trek downwards once higher interest rates come into effect in the fourth quarter of 2013.”

The Federal govt controls hi-ratio mortgage lending…. (mortgages that are greater than 80% loan to value)…  There is a $600 billion limit for Canada Mortgage and Housing Corporation (CMHC… a federal corp).   And a $250 billion limit for Genworth Financial Canada (a private corp).

Last year, the govt reported CMHC was fast approaching it’s $600 billion limit and that it had no intentions of increasing that limit.  Then last month, the federal govt announced they would increase Genworth’s limit to $300 billon.  This gives Canada’s mortgage lenders some breathing room as it now appears as though there is enough room to cover mortgages for a few years…

WHY YOU SHOULD PAY ATTENTION

This latest move troubles me…  Finance Minister Flaherty has repeatedly said he would like to see CMHC privatized over the next 5 to 10 years.  While I’m all for less govt and more privatization, housing programs have been a huge win both the citizens of Canada and the govt.    CMHC is profitable… they earn billions of dollars each year.   They also make the dream of owning a home a reality for thousands of Canadians each and every year.   Our economy depends on a healthy housing market.

Privatization would mean less competition for mortgage insurers….Less competition ALWAYS means higher cost to the consumer…  We’ve seen and experienced this with the BIG SIX BANKs and their user fees, obscene mortgage penalties and RECORD BANK profits in 2012 (don’t worry, Canadians have begun to catch on to the BIG SIX and are slowly pulling away according to the latest stats)..  We should expect the same if the Feds are allowed to push through the sale or closure of CMHC…

Let’s hope the govt will not do anything as crazy as to privatize a 66-year-old govt corp that has played such an important role in shaping Canada’s landscape….  I can only imagine what would have happened if CMHC was not around in October 2008, when the US sub-prime mortgage crisis hit….  There has been much talk about our strong Banking and Financial sector that saved us from a similar economic collapse…  But would the private insurers still have offered the much-needed mortgage insurance products during those critical first 6 months after the crisis?  Would that infamous stable, Canadian housing market, been able to survive the US shock waves?    Would our economy still be the envy of the world?  Or would we be just as vulnerable and suffer the same fate as so many other countries did….and like so many other countries still do… and struggle to recover.

When the forerunner of the Canada Mortgage and Housing Corporation opened shop in 1946, its job was to help war veterans find housing. From those humble beginnings, CMHC has emerged as a financial market giant. As this baby-boom behemoth contemplates life after 65, it, like many of us, should consider a more modest public role.

By the 1950s, CMHC was in the affordable (public) housing business; Toronto’s Regent Park was one of its first projects. The agency’s social policy portfolio expanded, with assisted housing and assisted home-ownership programs, on-reserve housing, and green energy and conservation programs.

What has also grown is CMHC’s mortgage loan insurance program. Federal law requires successful mortgage applicants to buy mortgage insurance if their down payments are less than a legal minimum (currently 20 per cent of the home purchase value).

This insurance guarantees lenders are repaid in full, even if borrowers default on their mortgages; this, for good or ill, lifts from financial institutions most of the risks associated with mortgage lending. Those risks are big: Through mortgage insurance, CMHC’s gross loan exposure is now scraping its $600-billion legislated limit. Taxpayers are shielded in part by CMHC’s $13-billion equity buffer, but nonetheless are exposed to the liabilities that will follow on an extended housing market downturn.

Now, while high loan-to-value-ratio borrowers must buy mortgage insurance, they need not buy it from CMHC. Smaller, private sector providers supply about 30 per cent of the market. They offer products and prices similar to CMHC’s, and are similarly on the hook when mortgages go bust. There is no direct taxpayer exposure to those bad loans. However, if the insurer itself were to go bust, taxpayers are responsible for 90 per cent of the residual exposure.

The reason for the private sector’s federal backstop is to lower financial institutions’ capital costs. If an insurance provider with a federal backstop insures banks’ mortgage lending, under international agreements and domestic regulation, lenders need to reserve little or no capital against their mortgage books. Insured mortgage lending is almost riskless and costless to lenders.

Many questions flow from this situation. Why does the Crown corporation do all of the things it does? Why aren’t social housing and related social programs part of a division of Human Resources and Skills Development Canada, where similar social programs reside? Why aren’t housing market data functions handled and financed by Statistics Canada? Why aren’t green energy programs part of Natural Resources Canada? Why aren’t mortgage bond and securitization programs run by Treasury or Finance?

And that leaves mortgage insurance. This usually is a profitable business – people must buy the product, and to do so at the price CMHC sets. But why does the federal government hustle mortgage insurance, and not auto insurance?

Given such questions, the obvious next step would be to split up CMHC.

Few outside government would notice if Statscan took over housing market data, or if energy-conservation programs migrated to other federal departments. CMHC’s financial market functions are already overseen by Finance and the Office of the Superintendent of Financial Institutions, which also inspects private insurers. And the Canada Mortgage Bond program could be run by Treasury.

The mortgage insurance program, meanwhile, would be an attractive investment for a well-capitalized domestic financial institution, such as a pension fund (the Ontario Teachers’ Pension Plan already owns half of one of the private insurers). In private hands, the current insurance book could be grandfathered, and new contracts underwritten by a reconfigured agency called, say, the CMHC.

Again, few would notice the shift; the key difference would be the new layer of taxpayer protection afforded by a 90-per-cent (or lower) guarantee of residual housing market liabilities, rather than the 100-per-cent exposure within the current CMHC. In a market occupied by private competitors, a broader range of portable insurance products and prices seems a likely outcome.

Mortgages and mortgage insurance would still be regulated by federal and provincial rules, exactly as now. Regulation of conduct and oversight with respect to financial stability would still be federal responsibilities. Consumers and most market participants would be unaffected by the change.

CMHC, as it exists, has outlived its mandate.

 http://www.theglobeandmail.com/report-on-business/economy/housing/private-sector-should-take-on-cmhcs-role/article6922279/?service=print

The 12-month change in the Teranet-National Bank House Price Index has decelerated in recent months to 3.4%, led by declines in Vancouver (-1.4%) and Victoria (-1.7%). Some people interpret this weakness as a sign that a housing crash has started – see, for example, the Canadian Business article “Canada’s housing crash begins.” I don’t see a collapse in 2013 for several reasons. One is the highly supportive monetary environment.

In the case of the US housing boom from 2003 to 2007, the overvaluation was pricked after the Federal Reserve dramatically tightened monetary policy to cool off an overheated economy. This catalyst is absent in Canada as 2013 commences.

Indeed, monetary policies in Canada, the US, Japan, China and elsewhere around the world are dialled to the opposite extreme. They are hyper-expansionary, with interest rates at record lows and printing presses running like never before.

This means that Canada and other countries should continue generating growth in jobs and income. Since higher employment and income typically support housing markets, prices are not likely to fall much in 2013. Or if they do, they shouldn’t stay down for long.

Click here for the full Globe and Mail article.

US Congress’ excruciating, extraordinary New Year’s Day approval of a compromise averting a prolonged tumble off the fiscal cliff hands President Barack Obama most of the tax boosts on the rich that he campaigned on. It also prevents House Republicans from facing blame for blocking tax cuts for most American households, though most GOP lawmakers parted ways with Speaker John Boehner and opposed the measure.

Passage also lays the groundwork for future battles between the two sides over federal spending and debt.

Capping a holiday season political spectacle that featured enough high and low notes for a Broadway musical, the GOP-run House voted final approval for the measure by 257-167 late Tuesday. That came after the Democratic-led Senate used a wee-hours 89-8 roll call to assent to the bill, belying the partisan brinkmanship that coloured much of the path to the final deal.

“A central promise of my campaign for president was to change the tax code that was too skewed towards the wealthy at the expense of working middle-class Americans,” Obama said at the White House before flying to Hawaii to resume his holiday break. “Tonight we’ve done that.”

Click here for more from the Globe and Mail.

Canada welcomed Washington’s last-minute deal on the fiscal cliff today, but warned that significant risks remained and urged more action to put the US fiscal situation on a sustainable path.

“Canada welcomes the agreement reached between the (US President Barack Obama) and the Congress that protects the US economy in the short term,” Finance Minister Jim Flaherty said in a statement.

“That said, there remain a number of significant risks to the US economic outlook. It is my hope that leaders in the United States continue to work together to develop future action that will put the US fiscal position on a sustainable path,” he said.

Click here for full details in the Financial Post.

You’ve probably missed the bottom of the US housing market, but the question for Canadians is whether it’s too late to jump in now.

Maybe it’s the strength of the loonie, the increasing value of their principal residences or the lure of still deeply discounted housing, but Canadians love the United States – especially the Sun Belt – where we remain the #1 foreign buyer of property.

Prices won’t likely go lower, says Beata Caranci, Deputy Chief Economist at TD Canada Trust. But, based on the 5% year-over-year growth that the United States has seen in average property values, they’re not returning to 2006 levels anytime soon either.

“If you were trying to get in at the very bottom, you missed it,” Caranci says. “You are still pretty darn close to skimming the bottom, and the more you wait, you can expect about 5% price growth every year.”

Click here to read the Financial Post article.

Canadians appear less concerned about retirement planning than in years past as they continue to focus on debt reduction as their main financial priority, according to a new study released today by CIBC.

Overall, the poll done for the bank by Harris/Decima showed 17% of respondents selected debt reduction as their main priority in 2013, unchanged from 2012 and the third year in a row that it has topped the list. Fourteen per cent chose debt reduction in 2011.

But while paying down debt topped the list, it remains to be seen how much progress Canadians will make in accomplishing that goal.

Despite having the same priority last year, Statistics Canada says the household debt to income ratio actually rose to a record high 164.6% in 2012.

Click here to read more in the Globe and Mail.

Click here for the CIBC press release.

The crash crowd says Canadian houses are overvalued on the basis of the price-to-income ratio. But with so much monetary stimulus in the system, the price-to-income ratio should also be normalized by income increases. (Ross D. Franklin/AP /Ross D. Franklin/AP) Trading Shots Why the housing market won’t crash in 2013 LARRY MACDONALD Special to The Globe and Mail Published Friday, Dec. 28 2012, 4:00 AM EST Last updated Friday, Dec. 28 2012, 4:00 AM EST

The 12-month change in the Teranet-National Bank House Price Index has decelerated in recent months to 3.4 per cent, led by declines in Vancouver (-1.4 per cent) and Victoria (-1.7 per cent). Some people interpret this weakness as a sign that a housing crash has started – see, for example, the Canadian Business article “Canada’s housing crash begins<http://d1ej5r2t2cu524.cloudfront.net/RaymondLee-Merix/merix-products-and-financial-update-please-respond-to-april-morin-merixfinancial-com/294705-d1ej5r2t2cu524.cloudfront.net/rachellegregorymarshall/merix-products-and-financial-update-please-reply-to-colleen-liao-merixfinancial-com/294625-www.canadianbusiness.com/lifestyle/canadas-housing-crash-begins/?c=2da348b7-ba03-400e-a47b-acd465ca2aa3>.” I don’t see a collapse in 2013 for several reasons. One is the highly supportive monetary environment.

In the case of the U.S. housing boom from 2003 to 2007, the overvaluation was pricked after the Federal Reserve dramatically tightened monetary policy to cool off an overheated economy. This catalyst is absent in Canada as 2013 commences.

Indeed, monetary policies in Canada, the U.S., Japan, China and elsewhere around the world are dialled to the opposite extreme. They are hyper-expansionary, with interest rates at record lows and printing presses running like never before.

This means that Canada and other countries should continue generating growth in jobs and income. Since higher employment and income typically support housing markets, prices are not likely to fall much in 2013. Or if they do, they shouldn’t stay down for long.

The crash crowd says Canadian houses are overvalued on the basis of the price-to-income ratio. So they fear the process of mean reversion will take prices down by 25 per cent or more. But with so much monetary stimulus in the system, the price-to-income ratio should also be normalized by income increases.

Interest rates may begin edging up later in 2013. They shouldn’t threaten the housing market because income and employment will be climbing as well, creating offsetting demand for housing. Similarly, the one-off impact of a tightening in mortgage rules during 2012 should not be cause for a serious setback.

There are other reasons for expecting a crash to be a no-show in 2013. Suffice it to say that the monetary cycle suggests a soft-landing scenario. This is not to deny there are pockets of extreme overvaluation or oversupply, where the risk of substantial correction remains. Cases in point could be Vancouver housing and Toronto condos

While I’ve been busy sinking money into mortgage payments, daycare costs, RESPs, RRSPs, utilities, groceries, vehicle maintenance and the occasional vacation, I’ve somehow failed to notice that many Canadians seem to be doing all this – and stepping up their mortgage repayments, too.

According to the Canadian Association of Accredited Mortgage Professionals, over the past 20 years mortgage repayment periods have shrunk to two-thirds of the actual contracted period. Furthermore, during the past year – a time when household debt has soared to a record high – 32 per cent of borrowers have managed to dramatically accelerate their mortgage payment schedules.

Yes, you read that right. At a time when Canadians have loaded up on consumer, house and car debt, it appears that many people are finding ways to pay off their mortgages faster.

Of the almost 6 million mortgage-holders in Canada, about 1.9 million made additional payment efforts during the past year. I was not one of them, unless the biweekly payment option counts. Instead, I am among the 60 per cent of mortgage holders who made only their minimum mortgage payment.

The association’s annual survey, which was released last month, contains some interesting data about those aspiring to be mortgage-free sooner.

• $300 – the average monthly increase to regular mortgage payments in the past year
• $22,500 – the average lump sum payment among mortgage-holders in the past year
• $29,000 – the average lump sum payment among those now mortgage-free during the last year of their mortgage

Of course, paying off a mortgage faster is a good thing. But is all this bumping up regular payment amounts, making an annual balloon payment and increasing the frequency of payments, actually making a serious dent in people’s overall debt load?

Not necessarily, says Rona Birenbaum, a financial planner with Caring for Clients in Toronto. When she sees clients with very aggressive amortization schedules, a closer look at their cash flow reveals a starkly troubling overall financial picture.

“How are you affording this?” she asks them, “You must be creating debt somewhere else, and they are.”

Credit card balances and lines of credit are often rising on the other side of the ledger, she said. Keep in mind that credit card debt comes with higher – often very high – interest rates. All of that means that while people’s mortgage debt is falling, their consumer debt is rising.

“Overall, they are not getting ahead,” Ms. Birenbaum said.

Ultimately, the goal of mortgage freedom makes financial sense for everyone. But Ms. Birenbaum believes that the right approach to repaying mortgage debt depends on the individual or family. It requires discipline with cash flow, and a commitment not to spend a sudden injection of income, such as inheritances or bonuses, on items other than mortgage repayment.

“Interest rates may be low, but any interest is money out of your pocket and into the banks,” she said.

And with mortgage rates well below historical averages, borrowers can certainly save money by taking advantage of the low rates to shorten their amortization period.

The survey also noted that the average interest rate was 3.55 per cent, and that mortgage rate discounting remains “widespread” in Canada – with the average actual rate for a five-year fixed rate mortgage at 1.85 percentage points lower than the posted rates.

The report, which is based on an online survey of 2,018 Canadians, found that one-third said low interest rates have helped them beef up repayments, and that the majority planned to pay off their mortgage in less than 25 years.

For Ms. Birenbaum, the report shows that borrowers are getting savvy when it comes to the flexibility offered in their mortgages, but it also reflects some anxiety about what rising interest rates can mean if they don’t have the capacity to pay.

“Canadians are pretty freaked out by what happened in the U.S. and they don’t want to go down that path,” she said.

As a result of prudent mortgage lending practices, the number of mortgages in arrears in Canada was trending down in 2011 and the first half of 2012, according to the Canadian Housing Observer, released yesterday by CMHC.

“The Canadian Housing Observer is an indispensable source of information about housing’s role in the economy, and better information helps contribute to the stability and efficiency of Canada’s housing system,” said Karen Kinsley, President of CMHC. “This marks the 10-year anniversary of this publication, relied on by many in the private, non-profit and government sectors for its analysis and insight into the dynamics of Canadian housing,” added Kinsley.

Click here to read the latest Canadian Housing Observer.

Click here to see CMHC’s press release.

While I’ve been busy sinking money into mortgage payments, daycare costs, RESPs, RRSPs, utilities, groceries, vehicle maintenance and the occasional vacation, I’ve somehow failed to notice that many Canadians seem to be doing all this – and stepping up their mortgage repayments, too.

According to the Canadian Association of Accredited Mortgage Professionals, over the past 20 years mortgage repayment periods have shrunk to two-thirds of the actual contracted period. Furthermore, during the past year – a time when household debt has soared to a record high – 32% of borrowers have managed to dramatically accelerate their mortgage payment schedules.

Yes, you read that right. At a time when Canadians have loaded up on consumer, house and car debt, it appears that many people are finding ways to pay off their mortgages faster.

Of the almost 6 million mortgage-holders in Canada, about 1.9 million made additional payment efforts during the past year. I was not one of them, unless the biweekly payment option counts. Instead, I am among the 60% of mortgage holders who made only their minimum mortgage payment.

Click here for more from the Globe and Mail.

OTTAWA — Canadians are more in hock today than ever before, Statistics Canada said Thursday in releasing fresh data on household debt.

The new report shows household debt to annual disposable income reached a new high at 164.6%, from 163.3% the previous quarter.

Bank of Canada governor Mark Carney has named rising household debt a key risk to the Canadian economy, but noted this week he was encouraged that credit growth appeared to be slowing.

Still, Carney has also said he expects the debt-to-income ratio to keep rising over the next couple of years. That is in part because of a lag in time between purchase decisions — such as a new home — and when the debt gets registered.

In the July-September period, households borrowed $27.3-billion, $18.4-billion of that in mortgages, while consumer credit levels increased by $7-billion to $474-billion.

The high debt-to-income number may surprise Canadians who only a few months ago were told it was just above 150%. But Statistics Canada has recently revised how it calculates the measure to make it more representative of actual household finances.

As well, household net worth rose 1% to $197,800 in the July-September period, mostly due to gains in holdings in stocks, including mutual funds, and increased value of pension assets.

Economist Jimmy Jean of Desjardins Capital Markets said the report is unlikely to change the perception of Canada’s debt problem.

The debt-to-income ratio has been setting new records since 2003, but remains below the peak reached south of the border before the 2007 housing crash. StatsCan says using equivalent measurements, Canada’s ratio is about 10 percentage points below the peak reached in the U.S. prior to the housing crash in 2007.

The Bank of Canada, Jean notes, shouldn’t be shifted from its interest rate stance given “the evolution of debt seems to tie in to its expectations.” He pointed out that the effect of mortgage tightening rules brought in July had only begun to be felt in the third quarter numbers.

But while managing debt doesn’t appear to be a major concern at the moment, thanks to super-low interest rates, the danger signs continue to flash red, economists warned.

“The high level of debt leaves households more vulnerable to a rise in interest rates than they have been in the past,” said TD Bank economist Diana Petramala.

“Given the prospects that interest rates will eventually rise, households must cool their spending and borrowing further.”

On a national accounting level, Canada’s net worth increased by more than $9-billion in the third quarter to $6.8-trillion. That translates to $194,100 per person.

However, an increase in net foreign indebtedness dampened the gain, the agency said.

This higher net foreign debt was largely a result of increased Canadian borrowing abroad, as well as a decrease in the value of Canadian investments denominated in foreign currency because of the rising value of the loonie.

 The Canadian Press