Tighter mortgage regulations are making Canada’s housing market less risky, according to the government agency responsible for its oversight.
Default rates remain low, and growth in the residential-mortgage market has slowed, likely due to the implementation of stress tests at the start of 2018, the Canadian Mortgage and Housing Corp. said Wednesday in a report from Ottawa. These are signals of “improving financial stability,” the agency said.
The report lends credence to the Bank of Canada’s view that the housing market is stabilizing, and that vulnerabilities, though elevated, are likely to ease over the next couple of years. It also supports the bank’s decision to hold steady on interest rates, since reducing them could lead to a resurgence of borrowing, reigniting the credit buildup that has been identified as a key risk to the economy.
CMHC said lower global interest rates could “re-incentivize” mortgage credit growth in 2020. It also highlighted the narrowing gap between insured and uninsured mortgages, lower long-term funding costs for lenders and the resulting decline in spreads between fixed and variable rate mortgages.
The market size for Mortgage Investment Corporations, which aren’t regulated in the same way as chartered banks, was $13 billion at the end of 2018, CMHC estimated, and it’s growing at 10 per cent year over year, versus two per cent for the rest of the sector. At the same time, loss rates at MICs are falling “despite appetite for second mortgages,” the agency said.
Interest rates at MICs and private lenders range between seven per cent and 15 per cent, according to the agency, which added that delinquency rates at credit unions average 0.16 per cent, versus 0.26 per cent at Mortgage Finance Companies and 1.92 per cent at MICs.