The Canadian real estate market has made a rapid recovery, with prices soaring above previous years' levels and causing affordability to drop below historic averages, according to Desjardins Economic Studies. In Ottawa this has everyone worried that the market is perhaps too strong, and Bank of Canada governor Mark Carney even inadvertently focused some of the blame on to lenders and even borrowers.
The Financial Post's Diane Francis took another approach. In a recent op-ed piece she wrote that the Canadian Mortgage and Housing Corporation (CMHC) is encouraging "reckless" banking, so to speak.
"Tories are allowing CMHC to become like Freddie and Fannie south of the border, a rogue financial institution the size of one of our big five commercial banks," she wrote.
When CMP approached CMHC for comment, a representative said that it has drafted a letter in reply to the article but was waiting for the Financial Post to publish it before saying anything else - something that hasn't happened yet at the time of writing this.
Francis' pointed to the Bank of Canada's low interest policy, combined with CMHC being allowed to insure $600 billion in mortgages, up from $450 billion the year before, as reason why residential real estate is in a "bubble," despite high unemployment and recession.
Stewart Hall, an economist with HSBC was quoted last week in the Globe and Mail saying that "the government's program to buy billions in mortgages [is] a key element in the run up in the real estate market."
Just a few paragraphs earlier though, access to loans, fueled in part by CMHC's policies, is credited with driving the entire Canadian economy, unlike other advanced economies around the world.
CMP reader and broker Donald Bruce pointed to the flaws behind blaming low interest rates for the "bubble" on the Mortgagebrokernews.ca forum.
"Interest rates are used as a management tool by the Bank of Canada largely to control inflation, but also to influence the current currency exchange values, particularly against our major trading partner, the United States," he wrote. "As long as the Canadian dollar is strong comparatively to the U.S., and inflation stays below the two per cent target of the government, then the price of houses is irrelevant when it comes to determining interest rates."
This begs the question: Is CMHC fuelling the housing market in a negative way, or is this just another example of mainstream media sensationalizing things?