The Globe and Mail reported August 12, 2013 that "Three-quarters of all Canadian mortgages are insured by the federal government, up from only 30 per cent in 1988." ... "Ottawa guarantees a total of $900-billion worth of mortgage insurance." ... "It has been a no-brainer for the banks." Lenders have used up nearly 80% of this year’s available government guarantee by July 31, 2013.
In the Globe & Mail article, the author Barrie McKenna points out:
- 1990s, CMHC minimum down payment went from 10% to 5%
- 2006, CMHC introduced 0% down-payment and it extended mortgage insurance to cottages and second homes.
- Early 2000s, the creation of government-backed mortgage bonds and CMHC removes the $250,000 cap on the size of mortgage it would insure. (Ottawa would eventually reimpose a cap of $1-million).
- 2005 government lengthened maximum amortization period from 25 years to 30 years
- 2006 amortization period lengthened to 40 years (it has since been set back to 25 years).
- The final incentive to expand the availability of mortgage credit was the insured mortgage purchase program, which enabled banks to sell their government-backed mortgage bonds back to CMHC at a profit.
No Risk means No Due Diligence eh Canada?
Corporate bond manager Canso Investment Counsel Ltd. of Richmond Hill, Ontario estimates:
"...that the combined impact of successive federal programs may have added as much as 50 per cent to house prices in key markets, such as Toronto. Canso estimates that the “affordable” price of an average two-storey home in upscale North Toronto is $615,000 – well shy of the actual price of $900,000."
In Canso's June Newsletter is a chart showing the comparison of housing as a percentage of GDP between Canada and the USA. Canada is overdependent on residential investment. So was Spain.