The Canada Mortgage and Housing Corporation (CMHC) have implemented new rules on guarantees it offers banks and other lenders. A move CREB®’s president said is a step to control a market the agency feels is “overheated”.
In a note to lenders, the agency said it would be restricting banks and mortgage companies to a maximum of $350 million of new guarantees this month under the National Housing Act Mortgage-Backed Securities program.
The federal corporation was given authority to guarantee up to $85 billion this year under the program with $66 billion of that committed to the end of July and approaching a total of $76 billion for the entirety of 2012.
“As a result of this unexpected increase in issuance volumes to date and to better manage volumes going forward, CMHC will be introducing a formal allocation process in late August,” the agency explained in the Aug. 1 note.
“CMHC has been tightening up lending practices for the past couple of years,” said CREB® President Becky Walters. “This is one more step from them to control the market that they feel is overheated. The government has been saying that the interest rates will have to rise, and I think this will do just that. If the banks are incurring more costs to lend, they will pass that on to the consumers.”
Economists from across the country have been weighing in on the decision.
“The question for consumers is if they will be able to get low or lower interest rates. It seems this would be a constraint on that,” Central 1 Credit Union Economist Bryan Yu was quoted as saying in the Vancouver Sun.
“Overall, the days of very cheap mortgages are going to be replaced by cheap mortgages,” Avery Shenfeld, CIBC chief economist, told Maclean’s.
The changes have the potential to impact a Calgary market already affected by June flooding. Residential sales in Calgary sales totaled 2,268 units in July, a 17 per cent increase over the previous year and up more than six per cent so far this year.
CREB®’s Chief Economist Ann-Marie Lurie said the flood, which devastated southern Alberta on June 20 likely contributed to the increase in sales activity.
“Some of this activity is related to the displaced renters and owners seeking other accommodation,” said Lurie. “But those consumers already searching for a home may have sped up their purchase decision, in response to concerns regarding the impact tight supply levels would have on prices.”
While citywide prices are nearly seven per cent higher than levels recorded in July 2012, the unadjusted monthly gains have been easing with the city’s resale market in seller’s territory, which is supporting price growth. The benchmark price for Calgary totaled $414,100 in July.
“Some sellers have been waiting for prices to recover before listing their homes,” said Walters. “Current market conditions have encouraged listing growth this month, for singlefamily homeowners.”
A total of 1,575 single-family homes sold in July, a 14 per cent increase over the previous year. While year-over-year new listings increased in July to 1,958 units, it was not enough to ease supply pressures in the market. Overall, active listings declined to 2,917 units, nearly 20 per cent lower than already declining levels recorded in 2012.
While sales and new listings increased in July, the CMHC’s Starts and Completions survey reported housing starts in Calgary decreased 23 per cent year-over-year.
“CMHC’s Starts and Completions survey for June was completed prior to the flooding in Calgary,” the report stated. “Many of the areas affected by the June flooding were in established inner city communities, which will likely impact the construction of some infills and redevelopment in the short term.“
A total of 693 condominium apartments and townhouses sold in July, a combined increase of 26 per cent compared to July 2012 and a year-todate increase of 16 per cent.
“Clients looking for affordable homes are considering community, product and price,” Walters said. “While there are affordable singlefamily homes in some communities, some may prefer condominiums in the same price range so they can live in a preferred community or get a home that requires less renovation.”
On the other end of the spectrum, luxury homes in Calgary are also making their mark as far as sales. In July 70 homes priced at $1 million or more changed hands, a 66 per cent increase compared to July 2012 when 42 homes were sold at that price point.