The Canadian Mortgage and Housing Corporation (CMHC) has been facing some heavy criticism from the broker community for a number of reasons, including its First-Time Home Buyer Incentive and its frequent and vocal support for the latest iteration of B-20 amendments.
At Mortgage Professionals Canada’s national conference this week, CHMC President and CEO Evan Siddall had a conversation with MPC President Paul Taylor in front of a packed house.
First, Siddall provided an update on the take-up of the CMHC First-Time Home Buyer Incentive, which he says is helping a very targeted group of people. They’re ramping up the program, and after two months in action, they’ve noticed a disproportional adoption in Alberta and Quebec. Siddall thinks this may be due to new home purchases in Alberta being “very much” supported by a 10% share of equity and some particular lender-specific promotion of the program in Quebec. There hasn’t been a national equilibrium, and Siddall bets that it’ll be about half taken up in the first six months. At that point, they’ll reassess.
Mortgage brokers got to hear firsthand some of the motivations behind CMHC’s recent decisions, motivations that were met with both applause and vocal detractors.
Below, some of the most intriguing exchanges on the First-Time Home Buyer Incentive, post-election predictions, and the desires and vulnerabilities of first-time homebuyers.*
Paul Taylor: I think a few folks in our audience were probably really quite disappointed that the First-Time Home Buyers Incentive was the response that the current government brought to assist those folks, only because it’s only a small number of people that are actually going to be assisted by that. . . . What is missed a lot in our discussion of homeownership is not the investment value of property; the vast majority of people are looking for the security in housing when they’re not earning an income any longer, and if you’re renting, the cost is continually going to increase.
Evan Siddall: We’re trying to do two things: we’re trying to make sure house prices don’t take off because that’s the problem with housing affordability, the fact that house prices are too high, and that debt levels don’t continue to accelerate. . . these are vulnerable people. These are young families that are going to lose their jobs quickly, and when they lose their jobs in an economic downturn, I’ve got a responsibility to worry about them, and I think you do, too. So we want to make sure that they’re not so exposed to the problems of increasing debt. The idea behind the shared equity plan was that we would give people a chance to get into the market and that we wouldn’t do it just by increasing their indebtedness; we’d actually lower that. We’re going to see how it plays out.
PT: An election promise was made that the income would increase from $120,000 to $150,000 and the multiple would go from four to five times (basically $750k maximum); any hints as to whether you think that’s going to become a reality?
ES: That’s for political leaders to decide . . . I will say that the fact that the [First-Time Home Buyers Incentive] isn’t as useful—it’s not un-useful, but it’s less useful—in higher-priced markets may be a design feature in the sense that the more people are exposed to higher-value homes, the more they’ve got to lose.
PT: What is the likelihood that the limits within the program will be increased in the event that you’re not meeting target?
ES: I don’t have a target. It may be—you’ll laugh, but—it may be that the reason we’re at half capacity is because it’s not as grand a problem as everyone says there is. We actually are helping first-time homeowners. We’re offering people a 5% equity opportunity to buy a home. And I need to say this: we should all be concerned about the health of our real estate markets. There’s a lot of academic research that says that the combination of high prices and high debt levels is very dangerous, and a ratio of disposable income to house prices of 80% is a problem. We’re at 100% in Canada. If you want to crash a real estate market, feeding debt is exactly the way to make it happen, I’m telling you. I’m trying to preserve healthy markets, which you should want.
PT: I don’t think we’re philosophically misaligned at all; I think there seems to be a lumping together, though, of the threat of the investment purchaser versus the plight of the impoverished first-time buyer. . . Any appetite to increase the $1 million cap, so that you would allow for insured mortgages for many of the properties in Toronto and Vancouver today?
ES: All these aspects, and I should say including the stress test, we look at. We’ll sit down with the new Minister of Finance, whoever he or she is named on Wednesday, and well talk about the parameters associated with the housing market stress test, all that stuff, what happens if rate goes up. If rates go up, the stress test maybe should look a little different, and I’ve been receptive to that conversation. The million-dollar cap, we haven’t looked at in a long time. On the one hand, if we make it easier to buy million-dollar homes, I think I have a problem with that; on the other, if we’re providing insurance on it, we’re actually promoting financial stability, so it’s a legitimate question.
PT: Your term is likely going to be up at the end of 2020 . . . do you think Minister Morneau is likely to be reinstalled as Finance Minister, and will Minister Duclos retain CMHC oversight in the new cabinet?
ES: I can’t say . . . can I end by saying two things? I don’t want you to think we’re opposed to homeownership, that’s just not the case. It’s like blood pressure: you can have too much of a good thing. We’re just trying to get that balance right. As the supply of housing becomes restricted in markets that grow, like Toronto and Vancouver, there’s a high propensity to rent, and that’s okay. And we need to attend to renters, and not just owners, in our mentality but the dream of homeownership actually can be divisive . . . the other thing I want to say is, people think I don’t like you. It’s not true, and in fact, the more complicated we make this stuff, the more people need you, so you’re welcome.
*Conversation edited for length