The Last Housing Bear Capitulates

Steve Saretsky -

Per the most recent data from the Canadian Bankers Association, nearly 17% of all mortgages in Canada received a mortgage deferral at one point or another during the pandemic. At the end of February, 98% of those deferrals expired. Home prices during this time are up 24% nationally. Who saw that coming?

Certainly not our own government mortgage and housing agency, the CMHC. Remember the call was for a drop of 9-18% across the board. There were a lot of money riding on that call, ouch.

In all fairness to Evan Siddall, then head of the CMHC, it was a reasonable view at the time considering job loss was pervasive, the worst any of us had seen in our lifetimes. This prompted the CMHC to tighten underwriting criteria at the time over fears of buyers entering the housing market and going belly up. Of course the private insurers, Canada Guaranty and Sagen, never followed suit and gladly absorbed the additional business.

CMHC’s market share was between 45 -50% pre pandemic but slipped to 23% by earlier this year. In contrast, Sagen’s market share climbed to 44% and Canada Guaranty’s to 33%, according to RBC Bank.

What appeared to be a prudent plan on CMHC’s part ultimately backfired, and with Siddall no longer running the ship, they are reversing course. Effective this month CMHC is reverting back to pre-pandemic underwriting practices. Adding, “We are taking this action because our July 2020  underwriting changes were not as effective as we had anticipated and we incurred the cost of a decline in our market share. A healthy market share is an important consideration as it helps us fulfill the financial stability aspect of our mandate.”

This was a cruel reminder for those betting against the near 30 year bull market. Eventually it will break, but only once the last housing bear capitulates. Consumer confidence in Canada is now running at record highs so perhaps we are getting close. The Bloomberg Nanos Canadian Confidence Index jumped to 66.4 last week, the highest reading since surveys began in 2008.

Ironically housing is finally slowing down, just moments before CMHC threw in the towel. Vancouver home sales are off 34% from their highs in March. In Toronto home sales fell 9% month-over-month and are now down 31% on a seasonally adjusted basis from their March highs. Make no mistake, Inventory is still incredibly tight so the housing affordability headlines aren’t going anywhere anytime soon.

Three Things I’m Watching:

1. Consumer confidence in Canada hits record high. (Source: Bloomberg)

2. Toronto home sales have fallen 31% on a seasonally adjusted basis since their March highs. (Source: Edge Analytics)

3. The Greater Vancouver townhouse market is now the tightest segment of the local market. Months of inventory for sale sits at just 1.9 (Source: Saretsky Report)

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The Saretsky Report. December 2022