All good things must come to an end, the saying goes, and Canada's super-charged housing boom may be next on the block. The Canadian Mortgage and Housing Corporation has indicated it will lessen its involvement in the housing market over the next few years as it approaches a federally mandated mortgage insurance limit.
By law, CMHC is allowed to insure up to $600 billion in mortgages, a cap that has been raised three times in the last five years as the housing market accelerated, the Globe and Mail reports. As the agency prepares to cross the $500 billion threshold this year, it has begun making plans to slow down the rate of new mortgages insured, effectively limiting the amount of credit available to borrowers and dampening the overall market.
CMHC projects it will grow by $30.8 billion between 2011 and 2014, reaching overall levels of $587.7 billion by 2016, according to the Globe and Mail. This marks a significant slowdown from the $170 billion in growth the agency experienced between 2007 and 2010.
The prevalence of low mortgage rates has allowed Canadians to invest in the housing market at higher rates in recent years, and some finance officials are worried that unrestrained borrowing combined with record levels of personal debt will lead the country into a recession. Limited availability of mortgage insurance from CMHC could lead some lenders to hike up their rates, making home loans less affordable for the average consumer.
As homebuyers begin facing a tougher market, those who may be less prepared to pay off a mortgage will likely wait longer to buy a home and use the added time to save for a bigger down payment. Some financial experts, like Toronto-Dominion Bank's Craig Alexander, have called for additional rules on mortgages to help ensure homebuyers are prepared to pay off their loans.
Alexander and others have said Ottawa should create new regulations that shorten the maximum amortization period from 30 years to 25 years, raise the minimum down payment from 5 percent to 7 percent, and impose a means test on would-be homebuyers, according to reports from The Canadian Press.
Despite the impending rationing of mortgage insurance, CMHC says it will prioritize insurance for individual home loans, which shouldn't affect the cost of buying a home in Canada, according to the Globe and Mail. The mortgage insurance is used by banks to protect themselves in the event a homeowner defaults on his or her loans.