The Canadian housing market is at a very interesting point. The current housing market in Canada is one of the biggest in the world. As a matter of fact, the growth of 88% since 2005 makes Canada’s Housing market one of the highest growing markets of any other G7 country. 

The FIRE sector; Finance, Insurance, and Real Estate make up approximately 25% of the country’s GDP. Household debt to GDP has increased significantly over 100% of GDP. With the striking of the global pandemic crisis, what are policymakers to do now?

The current home ownership rate in Canada is approximately 69%, and we can see the wealth of Canadians now hanging in the balance. Evan Siddall, Canada’s Mortgage, and Housing corporation have expressed his concerns about the elevated levels of debt and the unsustainable increase in prices. He expresses that there is a possibility for home prices to fall between 9 and 18% based on the information from recent forecasts on the market. 

What Are Mortgage Lenders Doing?

Siddall made the decision to tighten lending standards in a bid to protect mortgage insurance providers that are taxpayer-backed. He is hoping that the other private mortgage lenders in Canada will follow his lead. But this is not what took place. 

Lenders have continued to issue new loans and are now directing their new business to the private insurers. Both private entities are of course happy about the growth they are experiencing, and we can’t fault them for that. They are only taking 10% of the risk as the government covers the other 90% of the loss. 

Siddall sees this as blind disregard and moral hazard. He recently wrote a letter to Canadian banks expressing his concern. His letter included the following request “… I’m asking for two things, first, we would hope you would reconsider highly leveraged household lending. Please put our country’s long-term outlook ahead of short term profitability. Second, please don’t aggravate the impact of undermining CMHC’s market presence unnecessarily.” 

Siddall’s letter was not well-received and was referred to by some bank execs as “alarmist and a bit extreme” but are we really surprised by all this?

What are your views on this matter? We’d love to hear them, please leave them in the comments below.