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February 25, 2010

February 25, 2010

The Altus Group has completed its analysis for the CHBA of the federal government’s
recently announced requirement for a minimum down payment of 20 per cent for
government-backed mortgage insurance for “non-owner occupied properties
purchased for speculation.”

You can download this report by clicking HERE.

The Report concludes that this new requirement will:

have little or no impact on any aspects of the market that could be considered “speculation”

curtail activity in an important component of the Canadian housing sector: contributions to the rental stock from small income investors

We are submitting this analysis to the federal government and recommending that the new
requirement be given serious reconsideration.

 

February 23, 2010

February 23, 2010

Consumer confidence is no longer the critical problem it was a year ago for most new home builders, according to the Winter 2010 Pulse Survey of the Canadian Home Builders’ Association (CHBA).

The survey reported that only nine per cent of builders, nationwide, cited consumer confidence as a critical problem compared to 54 per cent last winter. In Ontario it was still a critical problem for 17 per cent of the respondents.

Higher traffic at new home sales sites among first-time buyers, move-up and move-down segments of the market was reported by builders across the country. A year ago most builders reported lower traffic.

New home builders expect that housing starts will remain low, at about 142,900 units in 2010, slightly below the 149,100 units started in 2009 and well below levels recorded between 2002 and 2008. No region expects starts to be higher this year than last.

Rising costs due to development charges jumped to the top of the list of concerns for new home builders in the 2010 survey. About a third reported it as a critical problem, nationwide, almost two-thirds in Ontario. Rising costs due to serviced lot prices was also high on the list in most regions, 35 per cent in Ontario.

Two-thirds of new home builders expect that single-detached house prices will increase over the year.

CHBA renovator members expect increased activity for the second straight year but are increasingly concerned about losing work to the underground economy. Respondents were asked to estimate the proportion of new home building and renovation work in their market area that was undertaken on a “cash deal” basis, without paying taxes. These low-cost loans should lower the cost of borrowing for municipalities and can be used to fund the municipal contribution for cost-shared federal infrastructure programming.

Sixty-seven percent of the respondents estimated that more than half of all small repair jobs were lost to the underground economy. Forty-two per cent estimated that the same number of renovations costing $5,000 or less were lost. Sixty-five per cent estimated that about a third of small renovation construction activity in their market area was being done on a cash deal basis. Cash deals were believed to be less common for renovations costing $20,000 or more. Work in the underground economy was believed to be more prevalent in Ontario and British Columbia for all sizes of renovations and repairs and in Quebec for new home building.

About the Pulse Survey

The 43rd Pulse Survey of new home builders and renovators was conducted by the CHBA in December 2009 and January 2010 with the assistance of Canada Mortgage and Housing Corporation (CMHC) and Natural Resources Canada. A total of 387 new home builders and renovators responded to the survey. Results were tabulated and analyzed for the CHBA by Altus Group Economic Consulting

 

February 16, 2010

February 16, 2010

Since the beginning of December, the CHBA has been making continuous representations to the federal government about the state of the housing industry in Canada.

As you are aware, some commentators have argued that Canada risks the sort of “housing bubble” experienced in the U.S., now that markets and prices are recovering. This has led to calls for additional restrictions on mortgage lending including higher down payment requirements, and shorter amortization periods.

The CHBA has opposed such measures. We do not believe they are justified or needed. We have also made it clear to the federal government that unwarranted restrictions on mortgage insurance terms could both damage our industry, and imperil Canada’s economic recovery.

Housing markets in Canada remain healthy and stable, and housing demand is supported by economic fundamentals and a growing population. While historically low interest rates have certainly helped to motivate many Canadians to buy a new home, there is little evidence that this is leading to excessive risk-taking by borrowers.

We are not alone in this view. The Bank of Canada, the Department of Finance and Canada Mortgage and Housing Corporation have all stated that there is no evidence of a “housing bubble” in Canada. Other respected authorities, including Genworth Financial Canada and Altus Group Economic Consulting, have reached the same conclusion.

Consequently, the CHBA has very mixed reactions to today’s announcement by the Minister of Finance on rules to be applied to government-back insured mortgages, effective April 19th.

On a positive note, we were pleased that the 5% down payment requirement and 35 year amortization option remain in place for new home buyers. This is certainly the right outcome. Requiring new home buyers to meet the lending standards for the five-year fixed-rate mortgage, even if they chose a shorter term at a lower interest rate, is also prudent.

However, the CHBA was surprised and alarmed that the Minister announced new provisions requiring a 20% down payment for government-backed mortgage insurance on non-owner-occupied properties.

This restriction will impact condominium developers in communities across Canada. There had been no prior consultation with our industry on this matter, nor is there evidence that condo “speculation” constitutes a problem requiring such down payment restrictions.

The CHBA is commissioning research to assess the likely impact of the 20% down payment requirement, including rental supply, and will inform the federal government concerning how its new rules will affect housing markets, and consumers, across Canada. We will keep you informed as our work proceeds.