“Today, I will cover OSFI’s perspectives on the residential mortgage market.”
Those are the words that many brokers have been waiting to hear. And on Monday Julie Dickson granted that wish when she addressed the attendees of CAAMP’s mortgage broker forum. Following is part one of a two-part series, highlighting the salient issues Dickson touched on.
On the media:
Today, we can read articles about the market being in a “soft landing,” or more ominously, “teetering precariously.” Over the past months, a range of observers have expressed a variety of views. The Organization for Economic Cooperation and Development (OECD) found Canada’s housing prices to be overvalued on the basis of two gauges: price-to-income, and price-to-rent. Both The Economist and the International Monetary Fund (IMF) concurred, with the IMF also noting that residential investment as a share of GDP was at a two-decade high, and that house completions had outpaced household formation for the past decade and a half. Furthermore, the household debt-to-income ratio in Canada has surged over the last decade, making the economy vulnerable to adverse shocks.
On the difficulty of determining a bubble situation:
As a bank regulator, OSFI does study the market — but we do not volunteer opinions on whether a bubble exists. This is primarily because history has shown it is difficult to determine whether a bubble in any market exists, what the size of that bubble might be, or the consequences of it bursting. The ‘dot.com’ bubble, for example, was easy to identify in hindsight, but few saw it coming. Usually only a few people accurately predict bubbles; most do not — and if someone was able to predict a bubble accurately in the past, this, unfortunately, is no guarantee of future performance.
On the dangers of advising on a potential bubble situation:
Because bubbles are so difficult to identify, by taking a position one way or the other, OSFI could either provide positive reinforcement to banks to lend more (which could make a bubble bigger) or create an unnecessary slowdown in lending by banks. OSFI’s role is more about prevention, and ensuring that banks are prepared for the unexpected.