The numbers are in for the Canadian Mortgage and Housing Corporation’s first quarter, and it’s evident that the impact of last summer’s mortgage restrictions are showing up on the balance sheet.
The CMHC is covering fewer high ratio mortgages these days; 54 per cent less in total insured mortgages than at March end 2012. The crown corporation reported $562-billion worth of mortgages covered in Q1 2013, a decrease of $3.5 million year-over-year. The report also indicates the the decrease can be attributed to fewer home buyers requiring default insurance, which is mandatory for all home purchases made with less than a 20 per cent down payment. Symptoms of a slowing housing market, such as a downturn in housing starts and fewer resales, are a contributing factor.
Home Owners More Responsible With Debt Ratios
A key cause of fewer mortgages covered is the fact that there are fewer buyers on the market. Fewer qualify for mortgage financing as a result of affordability restrictions introduced last July. These new rules cut maximum amortizations for high ratio buyers to 25 years, and have effectively dissuaded some would-be buyers from entering the market with limited up-front funds. This is a positive trend for Canadian household debt levels, but more consumers sticking to savings timelines mean markets are suffering from fewer home purchases in the interim. Sales in markets across Canada have taken a slide as a result of this buyer shortage. CMHC coverage is also down due to an increase of buyers making larger down payments, eliminating the need for default coverage.
CMHC also reports the average amortization taken out by home buyers is 25 years, and that the average credit score of home buyers is 726 – a reasonably high score that shows buyers are taking a responsible approach to their debt, effectively managing their existing commitments and avoiding becoming overextended through their mortgages.
Defaults on a Decline
Another sign that buyers are taking fewer chances with their debt; fewer mortgages defaulted this year due to failure to make payments. The CMHC reported 14 per cent fewer claims in March 2013 compared to last year – a difference of $21 million. However, the corporation has also taken a loss with a net income of $378 million – a decrease of 15 per cent, or $69 million. It is anticipated that an additional $60 -$65 million in mortgage insurance payments will be received on an annual basis.
The National Impact
While it may be a positive sign that fewer buyers are requiring high ratio insurance, the CMHC is a crown corporation, and a prime money maker for the federal government. The corporation has contributed over $17 billion over the past decade, $15 million of which come from insurance coverage for high ratio mortgages. However, a decline in mortgage insurance may be seen as a positive thing for Canada’s economic growth; it was recently speculated that should an unforeseen economic shakeup were to damage the CMHC, our nation’s bank’s would be on the hook to bail the crown corporation out. It’s a step toward The department of finances vision of stability: wealth based on stable assets and savings rather than debt.