At long last, the monopolistic mortgage backer Canadian Mortgage & Housing Corp finally warns that the Toronto market is overpriced due to income growth not keeping up with soaring house prices.
Interestingly enough, they feel that Vancouver is a low risk as the top 20% of highest priced houses skews the $1.4M average and if stripped out, this average drops to $550K. They also note that constraints on buildable land and the income growth supports these prices.
What effect do you think this will have on general buying mentality in the Toronto area? Do you think this warning will have a cooling effect on the Toronto market and other parts of Canada?
I wonder why it took CMHC so long to cry uncle ... perhaps they see the train the lenders have steered their way.
I just received a communication from a lender this morning about an REO we purchased in April for $25K. They want us to share our costs of repairing/replacing the HVAC (hydronic heat) and plumbing (as the place was allowed to freeze), because CMHC is questioning their insurance claim on the property.
While I think Vancouver is in its own little bubble these days, Toronto may be more at risk of imploding due to the length of time this dance has been going and the looming condo glut. @Gary McGowan could contribute more.
I'm wondering....will this cause CMHC to tighten up their policies for backing lenders even more? I'm speculating that they desperately want to do so, but are probably getting pushback from Minister of Finance and the banks, as they likely fear any further tightening could lead to the piercing of the bubble.
This is the problem when politicians want to manipulate crown corporations for their own electoral ends. The Minister of Finance (or rather the last one) was responsible in part for the current mess by reducing the underwriting requirements for a owner occupied mortgage ... this allowed the lenders (Big-5) to offer 30yr amortizations with zero down (after cash back) mortgages to folks who should not have qualified for the size of mortgage they were trying to place. The tightening of the mortgage regulations in 2012/2013, of which the Minister liked to boast, was no more than a return to what existed before the government relaxed things.
CMHC is close to fully subscribed - and this is after an increase in their limits for which the lenders lobbied, so they will soon have to start refusing to underwrite some deals. The lenders, on the other hand, won't tighten their underwriting practices because they simply insure everything they can through CMHC and Genworth and do not carry the risk. Genworth is tightening up on what they will underwrite (and the never did high-ratio below 10%-15%) as they are a business. This leaves the rest in the hands and pockets of the tax payer.
Someone has to pull the break lever.