Sunday, December 13, 2015

CMHC - Liberals Recent Changes to the Rules

The challenge of bubbles forming in the Real Estate market is very difficult to regulate. CMHC and other countries’ equivalents have errored in that they have elevated both confidence of lenders and the availability of credit, thereby, to some degree distorting the market. There is no question that insuring mortgages reduces risk to lenders and by extension credit becomes both more widely accessible and more readily available. There is no question that Credit makes real estate more accessible, increases demand and elevates price.  It is more the case that government can exacerbate cycles in the real estate market, than it will ever be able to control cycles, or in any real way regulate markets away from cyclicality; save perhaps in the use of the draconian measures that were forwarded in the 1970’s by the then Liberal government in the form of wage and price controls – a disastrous policy foray that should be avoided with extreme prejudice.

One wonders what affect the recent bid by the new government at cooling the housing market will really have. One understands, that while it will be sometime before there is upward pressure on interest rates, that interest rates will rise and inherent in that reality is a “national” risk of widespread over extension  amongst the population holding large mortgages. How is this policy going to help. This will have little or no effect on the overall challenge; policy only makes sense when policy is effective. The government would be much better off issuing a payment matrix at the time of mortgage issue that shows the payment at today’s rates and the payments at 2 point intervals to 18%, the highest number I remember from the dirty 80s. This policy is false comfort at best.

What values are being exalted at the chosen price point; it is okay to have a $500,000 home, but $650,000 home is different – how?

CMHC as an agent to help young people get their foot in the housing market is a good thing, CMHC should be aggressive as it can be in helping New Entrants to the market. CMHC has a limited role to play in some other areas of the market as well – but in the main, lending intuitions need to be exposed to the risk of their choices. We saw the disasters that emerged from other realties in last big downturn, when people become isolated from responsibility they become irresponsible.   

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