DATE

CMHC

Canadian Lending Conditions Slow Borrowing

Steve Saretsky -

After Years of plunging interest rates, Canadian households now face the unthinkable, higher borrowing costs. Recent data from the Bank of Canada, and compiled by Better Dwelling, shows the effective weekly borrowing rate at a seven-year high. The effective borrowing rate is the interest rate which the typical household would get if they went to the bank for a loan.

The weekly effective borrowing rate reached 3.77% at the end of July, a jump of 18.55% from last year. This was the highest level Canadians have experienced since May 2011.

Canada effective interest rate
Source: Better Dwelling

As borrowing costs ratchet higher, and lending standards become more stringent,  mortgage growth continue slow. Recent mortgage data shows the him slowest pace of growth since 2001. Unsurprisingly this has weighed on national home sales, which through the first six months of 2018 have declined by 14.6% year-over-year. The slow down is particularly acute in Vancouver where home sales for the month of July slowed to an 18 year low, virtually in line with the pace of mortgage growth.

Vancouver home sales July
Vancouver home sales in July across all property types.

While CMHC has recently announced it will create more favourable lending conditions for self-employed individuals, it is ironically reviewing ways to curb mortgage fraud which is arguably more prevalent from self employed individuals. In 2017, data from Equifax Canada indicated that suspected fraud increased by 52% since 2013. Although this really shouldn’t come as a surprise as home values have grossly outpaced wage inflation, which has threatened the basic human need of shelter.

As a result of the CMHC requests, the CRA says it is now exploring ways to improve how it delivers taxpayer-specific information in a secure manner, including securely sharing tax information with financial institutions contingent on client consent.

Join the Monday Newsletter

Every Monday morning you'll receive a short and entertaining round-up of news on the Vancouver & Canadian Real Estate markets.

"*" indicates required fields

The Canadian Economy

Steve Saretsky -

Happy Monday Morning! We got a string of new data this past week confirming inflation in consumer goods, and housing are proving to be more than transitory. Canada’s consumer price index continued to drift higher with prices hitting an 18 year high, up 4.7% from last October. The recent floods in BC...

Steve Saretsky -

The calls for impending interest rate hikes continues. CIBC’s chief economist, Benjamin Tal, was out recently suggesting the Bank of Canada could hike its benchmark interest rate at least six times beginning in early 2022. “I think there is a risk of getting into the market at today’s rates,” noted Tal....

Steve Saretsky -

The BC Government announced it is looking at several cooling measures for the housing market in 2022. They have highlighted two measures. The first is an end to the blind bidding process, and the other is a mandatory “cooling off period” which will allow any buyer a 7 day recession...

Steve Saretsky -

The Bank of Canada continues to slowly drain liquidity after flooding the system with a firehose of cash during the pandemic. Bank of Canada governor Tiff Macklem announced the end of Canada’s QE program (also known as money printing). Furthermore, in Macklems words, “We expect to begin increasing our policy...

Steve Saretsky -

Consumer price inflation ripped higher in September, surging 4.4% year-over-year, the fastest pace of price increases in 18 years. Let’s discuss this further. We have an inflation problem and the Bank of Canada remains of the view that inflation will be transitory. Although they really can’t say otherwise, for if...

Get the Saretsky Report to your email every month

The Saretsky Report. December 2022