Mortgage Professionals Canada released its spring report on mortgages and housing this week. More so than in previous reports, this one was opinion-heavy on the overall affordability and sustainability of housing.
MPC’s Chief Economist Will Dunning has long held that mortgage rule tightening could trip up the economy, noting that “…the greatest risk to the housing market (and consequently to the broader economy) is not reckless consumers or lenders – it is needless policy changes.”
That position has been well covered by the media so we won’t belabour it here. Instead, here are four other quotes that deserve attention — this author’s feedback is in italics.
- “Our review of housing market data convinces us that changes in housing prices are fully respective of interest rates.”
- Affordability is a forceful lever and falling mortgage rates have been the fulcrum for that lever. Nonetheless, home prices also hinge on things like shortages of detached homes (in certain major metros), urbanization, income/jobs gains, natural population growth and immigration. Prices will continue reacting to these factors regardless of modest rate changes and policy tweaks.
- “…a few senior executives in the financial services sector claim to see increased risk and are calling for tighter lending criteria. We would be interested in seeing the supporting data.”
- Everyone should join in agreement on this one. Using a public podium to advocate housing changes (with potentially significant economic impacts) should obligate one to support that advocacy with hard data.
- Dunning goes on to say: “Mortgage lenders who are concerned about current risk-taking could very easily and very usefully add to the discussions by publishing data from their own businesses, especially with regard to Gross Debt Service Ratios and Total Debt Service (TDS) Ratios.”
- Plotting debt service ratios over time is vital for housing risk analysis because it tracks how capable people are of making their payments. It’s especially telling if you know how many people have high debt ratios. Industry resources like CMHC and OSFI have had aggregate TDS data like this for ages but refuse to make it publicly available.
- “The gap between posted versus actual rates has gotten increasingly large over time, and that change has implications for the reliability of any analysis that uses posted rates.”
- Dunning is correct here as well. Few useful conclusions can be derived from posted mortgage rates, since almost nobody pays them. The Bank of Canada has ample discounted mortgage rate data but declines to make it publicly available. That’s a disservice to housing analysts across the country. Hopefully Mr. Dunning makes his discounted rate data available as well.
- “At today’s typical mortgage interest rate (2.5%), and assuming an amortization period of 25 years: for the first payment, more than half (53%) is repayment of principal or forced savings.”
- This “guaranteed savings plan” is one reason why, each and every day, more people view home ownership as their retirement saviour. Over one-third of Canadians expected to rely on home equity to fund their old age, according to Scotiabank in 2012. With inadequate savings and meagre investment returns, that number has likely grown, and will continue to grow. Ottawa best take care to balance its desire to slow and de-risk housing with preserving this critical retirement safety net for millions of Canadians.