The national housing agency, Canada Mortgage and Housing Corporation (CMHC), earned a profit of $338 million in the second quarter of 2016, its second lowest in the last eight quarters. CMHC attributes the drop in revenues to lower parliamentary spending on housing programs, which fell by $17 million in the quarter. The agency continues to reduce its exposure to the housing market, decreasing its total mortgage insurance business by $3 billion in the second quarter. The insurance-in-force now stands at $523 billion; the legislated limit is $600 billion. Despite that drop, the agency says it provided residential mortgage insurance for 11.2% more units (134,891) than in the same period last year.

According to CMHC, Canadian homebuyers continue to be models of responsible borrowing. The average borrower’s credit score was a healthy 750, while the average gross debt service ratio, the percentage of household income needed to service all debt, was a very manageable 25.4%. The average residential mortgage insured by CMHC was $237,628, an increase of just 0.5% over last year.

The strength of the residential mortgage portfolio is reflected in the arrears rate, which actually dropped in the second quarter. The total number of loans in arrears as of June 30 was 8,386. However, so far this year insurance claims have increased by 15.1% ($28 million) compared to last year, the result of higher unemployment rates and the weakened economy in oil-producing regions.

Looking ahead, CMHC sees “a high level of uncertainty” for the economy. The main external factors that could have a negative impact remain slower growth in China, uncertainty in the wake of the UK’s exit from the EU, and global oil prices. The latter particularly pose a “significant risk” to the domestic economic outlook.

Internally, the two “vulnerabilities” that could exacerbate any economic downturn remain the “imbalances” in the housing market as detected by CMHC’s Housing Market Assessments framework, and the high household debt levels of Canadians. The Canadian debt-to-income ratio hit a new high in the first quarter, reaching 165.3%.

Spring 2016 was another steady quarter for CMHC. Our net income is stable, insured volumes are up and the overall arrears rate remains low. That said, we continue to monitor housing markets closely due to weaker economic conditions in parts of the country.

Based on these broad economic factors, CMHC makes the usual forecasts for housing starts and MLS sales in the remaining months of 2016 and 2017, both of which are predicted to slow. The rate of price growth in housing is also forecast to slow in 2017 as a result of a “composition shift,” with fewer of the more expensive resale units and more of the “moderately” priced resale units coming to market. Rising mortgage rates in 2017 are also expected to have a slowing effect on prices. Watch for revisions to these forecast numbers as the year progresses.

There will be changes to the capital requirements for residential mortgages as well. These will directly affect the lending institutions more than borrowers. Federally regulated mortgage insurers will be required to have more capital on hand when they lend to higher-risk borrowers, defined as those purchasing home whose prices are deemed to be high relative to their income. CMHC says it is consulting on this with the institutions in question and will put the final rules in place “no later than” 2017.

Summing it all up, the CFO and CMHC, Brian Naish, said that spring 2016 was “another steady quarter” for the agency, with net income stable, insured volumes up, and arrears rate low.

CMHC housing market forecasts
• Housing starts will slow, ranging from 181,300-192,300 units in 2016 and from 172,600-183,000 units in 2017, a slowdown compared to 2015 when there were 195,535 units.
• Multiple Listing Service® Sales are expected to range from 501,700-525,400 units in 2016 and a lower range of 485,500-508,400 in 2017. Demand for existing units is expected to moderate relative to 2015 and 2016, reflecting demographic trends and the gradual rise in mortgage rates.
• The average MLS® price for Canada will range between $474,200 and $495,800 in 2016 and between $479,300 and $501,100 in 2017.
• Higher prices will prevail in 2016 following a strong start to the year led by British Columbia and Ontario. The rate of price growth for 2017 is expected to slow because of a composition shift with a reduction in more expensive resale units, and an increase in moderately priced resale units. Furthermore, a projected slowdown in demand from rising mortgage rates in the second half of 2017 will contribute to slower price growth.

CMHC Second Quarter “Steady” But Future Uncertain for Economy by Josephine Nolan | Condo.ca