Massive decrease in insured mortgage market is the 'new normal' – CMHC

Lower volumes resulted from mortgage rule updates announced by the federal government last year

Massive decrease in insured mortgage market is the 'new normal' – CMHC
Canada’s national housing agency has announced that the 47% decline in the country’s insured mortgage market year-over-year in the third quarter is the “new normal level.”

The Canada Mortgage and Housing Corporation said in its latest financial report that it provided mortgage loan insurance to 67,915 units for the three-month period ending September 30 compared to 127,991 units during the same period a year ago.

Steve Mennill, CMHC’s senior vice-president of insurance, said that decreased volumes have been steady throughout the year as a result of the new mortgage rules announced by the federal government in Q4 2016.

The rules require all home buyers with less than a 20% per cent down payment to undergo a stress test to ensure the borrower can still service their loan should interest rates rise, or their personal finances fall. This cut into the purchasing power of some first-time homebuyers.

“We think we’ve found the new kind of level following those changes that were made close to a year ago,” Mennill said during a conference call earlier this week, as quoted by The Canadian Press.

“We’re fairly confident that the level of volume that we’re seeing now is the new normal level.”

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CMHC noted that the 47% drop in total insured volumes in the third quarter was primarily due to decreases in transactional homeowner and portfolio volumes. The agency reported that transactional homeowner volumes decreased by 13,966 units (30%) due to lower purchase and refinance volumes, while portfolio volumes decreased by 50,388 units (90%) mainly due to the market adjusting to new pricing as a result of the increased capital requirements.

Partially offsetting those decreases was an increase in multi-unit residential volumes of 4,278 units (17%), primarily due to an increase in multi-unit residential refinance transactions mainly resulting from a continued low interest rate environment.

In the first three quarters of 2017, total insured mortgage volumes were 211,891 compared to 345,716 in the third quarter last year.

As a result of the lower volumes, CMHC said its total insurance-in-force decreased to $484 billion as of September 30 of this year, a decrease of $28 billion from the end of 2016.

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