Canada Mortgage & Housing Corporation (C.M.H.C.) announced Thursday that they would be tightening their rules for offering mortgage insurance as of July 1st after forecasting declines of 9% - 18% in home prices over the next 12 months!
What are the new changes?
Keep in mind these changes are for insured mortgages, 39% of mortgages are Conventional Mortgages. So 61% of borrowers will be affected.
The changes are;
1) At least one of the borrowers will need a credit score of 680 or higher, up from 600. Only 5.9% of CMHC insured mortgages had credit scores below 680
This could eliminate some potential buyers from buying, but they should probably wait until they are more financially stable. It will lower buying power by up to 11%. In Saskatoon the average house price was $359,304 so far in 2020, the new rules could mean the buyer that could qualify for $359,304 now only qualifying for $323,370
Why did CMHC decide to make this move?
“COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” said Evan Siddall, CMHC’s President and CEO. “These actions will protect home buyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth.”
“Our forecasting suggests the ratio of household debt to disposable income will climb from 176% in late 2019 to well over 200% through 2021. These measures are intended to curtail excess demand and household indebtedness.”
“Job losses, business closures and a drop in immigration are adversely impacting Canada’s housing markets, which stand to see a 9% to 18% decrease in house prices over the next 12 months.” (It seems CMHC’s CEO, Evan Siddall, knew these policy changes were coming when CMHC made this prediction a few weeks back.)
From CMHC's perspective, they're an insurance company and they are looking at mitigating future loses.
The rest of the story
Is this really the best time to introduce these measures? With Covid-19 already slowing the economy, should CMHC be stifling the housing industry? Will this move drive house prices further downward as we are more than likely headed into a recession? Will CMHC lose some of its business? These new policies were introduced by CMHC and are not an industry wide mandate from The Department of Finance. Will Genworth and Canada Guaranty adopt some or all of these new policies? If not CMHC could lose up to 20% of its business, keep in mind they are a Crown Corporation and should have a duty to the Canadian taxpayer. Is their prediction of 9% - 18% drop in home prices for all of Canada? Are they more concerned about the larger centres?
Will restricting the buying power of home owners cause house prices to decline going forward? Some analysts predict house prices won't go back up until late 2021, early 2022!
Why does the government like to restrict home ownership? I get that they are trying to keep household debt down, as of January 2020, Canadian household debt was at $1.73. This means that for every dollar earned, the average Canadian owes a $1.73. Over 721,000 homeowners have taken advantage of mortgage deferrals. Why is there never any restrictions on credit card debt? Why not restrict the amount of credit that credit card companies can offer? Why not have a restriction on the amount of interest these companies can charge? How about restrictions on Private Lenders? Check out their interest rates some time! One I checked was offering loans for 39.99%, if you owned a home they would go as low as 19.99% and they offered mortgages for as low as 13.99%! What about restrictions on credit offered by car, boat and RV dealers? Buying a house is an investment and should be encouraged, let's start restriction other forms of credit that are really getting Canadians in trouble!