When government announces something on the Friday before Christmas, it’s a safe bet they hope nobody notices. Few did. So you probably didn’t hear that Ottawa – shortly after trying to blow up the housing market and choke off new mortgage borrowing – may be relenting. Or at least starting.
For the last few months realtors and builders, developers and lenders have been bombarding MPs and the munchkin minister known as F to throttle back on the market-murdering actions taken last summer. Real estate boards have been shocked to see sales in almost all major markets dive in the period since 30-year mortgages were snuffed, cash-back loans outlawed and CHMC insurance throttled back.
Across Canada resales have dipped below year-ago sales levels for eight consecutive months. New home construction has tanked, and everywhere new project financing is drying up. Mortgage broker ranks have thinned dramatically, and suddenly it seems letting residential real estate suck up a third of the national economy was, er, a bad idea. At least if you’re going to purposefully deflate it.
So what’s this?
While making a big deal of capping CMHC mortgage insurance as it nears $600 billion – theoretically putting the brakes on high-ratio, high-risk 5%-down deals – F has now thrown a new $50 billion into the marketplace, but this time to the private sector. Companies like Genworth have just received a massive 20% hike in their allowable coverage, which means the federal government will guarantee $300 billion worth of that company’s debt, up from $250 billion.
In fact so quiet was this announcement, it wasn’t announced at all. Genworth revealed F’s little Yuletide yummy in a media release that helped its stock soar last week, jumping 3% in a single day. And why not? It’s a gift. New legislation about to take effect lets Genworth provide bulk insurance coverage at the same time CMHC is being pushed out of that market. It also allows Genworth to take money previously earmarked for a guarantee fund and use it, presumably for more high-ratio lending.
Already taxpayers are on the hook for over half the $1.2 trillion in residential mortgages outstanding in Canada. It’s been this ocean of money which banks can hand out without risk – knowing any default will be covered by fed-backed insurance – which helped push prices skyward. Should the housing market stall and crash back to earth, Ottawa would suddenly have a liability the size of the entire national debt to deal with.
Of course, F says this will never happen.
“The housing market has softened somewhat in part because of steps that I’ve taken and I’m happy about that. Less demand, lower prices, modestly, in the housing market are much better for Canadians than a boom followed by a bust. So I’m all for a soft landing.”
Is the Genworth deal an admission real estate’s actually crumbling faster than the peckerettes expected? If this all-important Spring market stagnates into a swamp of listings with weak buyer demand and plunging prices, will it backfire on the whole economy? Is F losing his nerve in the face of rapidly-deteriorating sales numbers, a 30% dive in Vancouver and a condo implosion in the GTA? Have the realtors’ furious behind-the-scenes lobbying efforts worked? But is it too late?
Well, soon we’ll know. In Toronto and Vancouver the spring market begins in less than thirty days. Meanwhile the meme of a sick market spreads. For example, “Trump Tower Woes signal Top of Toronto Condo Market,” was the headline Bloomberg stuck on the top of its story detailed the plight of investors suing to get out of Canada’s tallest residential building. And the Globe and Mail days ago broke ground with this: “Shaky foundations: How Ottawa’s computers get Canadian home prices wrong,” showing billions in mortgage loans may have been made on sloppy appraisals. Or this.
This year brought the frothiest, weirdest, most delusional moments in Canadian real estate history. They were followed by hasty and dramatic restrictions which changed rules overnight. And 2012 ends in a funk market, realtor panic and policy disarray.
Six years ago F gave us 40-year mortgages and zero down. Four years ago the amount of government mortgage insurance was doubled. Three years ago came the cheapest mortgage rates in history. In between were new tax credits for first-time buyers and free money for renovations – all designed to goose housing. Then he pulled back hard last summer, sending the market into a dive. Now, desperate, he lays on more gas.
Soft landing? Stand back.