Ghost of Fannie Mae Haunts Canadian Housing as Exposure Worsens: Mortgages
Government-owned CMHC insured C$541 billion ($546 billion) in mortgages as of Sept. 30, an amount equal to 31 percent of Canada’s annual gross domestic output, as home prices climb and construction expands. In 2006, when U.S. home prices peaked, the combined exposure of the government-backed agencies to potential defaults was slightly more than a third the size of the economy, according to Bloomberg calculations based on U.S. Federal Reserve data. Fannie and Freddie were bailed out in 2008.
Another 1980s-style housing correction can’t be ruled out, said Finn Poschmann, vice president of research at the Toronto- based think-tank C.D. Howe Institute. “Everything under the sun will happen again. It always does,” Poschmann said, adding CMHC’s stress tests would be more credible if the agency provided enough data for outsiders to validate the results.
“Although there were a lot of discussions in the public domain about a house-price bubble, I must say clear evidence is lacking to support those conclusions,” said Mathieu Laberge, CMHC’s deputy chief economist, in a telephone interview.Arg! What is it with this myth? Or do bailouts from CMHC AND the U.S. not count somehow?
Unlike the U.S., Canada avoided having to directly inject public money into the country’s financial institutions during the financial crisis.
By insuring mortgages against default, CMHC says it helps lenders keep mortgage rates low. The agency also buys mortgage- backed securities from financial institutions, which it says lowers funding costs for banks and other lenders.Thereby driving prices up until housing becomes unaffordable. For the good of the consumers.
Even Bloomberg apparently can't come up with a current number on CMHC's total book, citing September's data. Really curious what it's at right now. Again, this price war on mortgage rates smells of trying to lock in the last of CMHC's coverage. I would if I were the banks.