CMHC Released their annual report last week, Tuesday May 8th. The Canadian Mortgage and Housing Corporation continues to be an integral player in contributing to the stability of the Canadian marketplace. In 2011, spending on housing accounted for a whopping 20 per cent of Canada’s GDP last year and CMHC provided $2 billion in support of housing programs. Here’s a summary of the report.
Economic Indicators and Forecasts
Economic growth slowed to 2.5 per cent in 2011 compared to 3.3 percent in 2010. The economy is expected to grow by 2.1 per cent in 2012
The Bank of Canada has indicated that the overnight lending rate is likely to remain consistent at 1 per cent for 2012. Mortgage rates (both fixed and variable) are expected to remain at low levels and CMHC predicts that there will be no exciting movements to posted mortgage rates. The posted 1 year fixed mortgage rate is estimated to be between the 3.3 per cent and 3.6 per cent range, whereas the posted 5 year fixed mortgage rate is expected to be between the 5.1 per cent to 5.4 per cent range
The unemployment rate declined from 8.0 per cent in 2010 to 7.5 per cent in 2011, while 2012 will see a rate of about 7.0 per cent
Housing starts were up just over 2 per cent from 2010. Sales of existing homes are expected to increase slightly in 2012 along with the average price (estimated to be around $368,900 in 2012).
Mortgage Loan Insurance
Back in the beginning of February 2012, CMHC was front and center with their news that they were approaching their $600 billion cap for loan insurance which is set by the Federal Government.
In 2011, CMHC had planned to only increase their insurance in force by 3.7 per cent to $533-billion. However, they actually increased it over 10.3 per cent to $567-billion and are quickly approaching their $600-billion limit. As you can see, the largest contributor to this increase is from the multi-unit residential units. CMHC is the only insurer of loans for large multi-unit rental properties, including nursing and retirement homes. Increased life expectancy paired with the aging baby-boomer cohort translates to a heightened demand for nursing homes and retirement homes alike.
What the Average CMHC Customer Looks Like
The quality of borrower is the only saving grace to the increasing level of CMHC insurance issued. The average equity in CMHC’s insured portfolio stands at 44 per cent meaning that the average person is financially stable and could withstand any potential adjustments to housing prices. To put this into perspective the average home price in Canada is approximately $370,000 and would therefore have a mortgage balance of $207,200.
Thankfully, the average credit score of CMHC-insured high ratio loans is 724! Since CMHC has sound underwriting practices the majority of homeowner loans are held by consumers with strong credit scores who demonstrate a prudent approach to managing their mortgages.