Killing 30-year amortizations on high-ratio insured mortgages was a move that some criticized and some applauded. But few could measure the potential side effects when the decision was made last July.
But now, Will Dunning, Chief Economist at the Canadian Association of Accredited Mortgage Professionals (CAAMP), has put out data that quantifies one of the risks. That risk is to employment.
In a recent report presented to Ottawa officials (and made available to CMT), Dunning concludes that a stunning 190,000 jobs will be lost between 2013-2015 due to the maximum amortization being cut from 30 to 25 years.
That’s 70,000 lost jobs in the new build market and 120,000 in the resale market, in just three years.
To put this in perspective, the entire Canadian economy generates roughly 20,000 jobs a month, Dunning notes. If his projections are correct, the new amortization rules eliminate almost 80% of a full year’s worth of job production.
CAAMP shared these findings with policy-makers in late February. We suspect the data won’t result in any imminent rule loosening as the government wants to monitor the impact of July’s changes further.
Housing analysts are waiting to see how the all-important spring market shapes up. The feds seemingly want prices to drop. But that’s not really happening.
Click chart to enlarge – Source: CREA
Canada’s average home price is currently just 1.8% below its May 2011 high according to CREA data. What’s more, year-over-year prices would have been higher in February if it weren’t for Vancouver weighing down the average.
On the other hand, sales volumes have sunk. Last month they were down 16%, after a 9% drop in the November 2012 and January 2013 period. We’re tracking at “420,000 (home resales) annualized,” says Dunning, “which is 11% lower than in the year prior to the announcement…so the impact is worsening.”
The sales plunge has obvious economic implications, not the least of which is to employment. Almost 1 in 5 jobs are housing sector-related and there is no economic driver to replace these jobs. So the debate now becomes, which is the worse evil: major job losses due to mortgage rule tightening, or potentially escalating and unstable home prices, triggering economic instability (and more job losses)?
Sidebar: To mitigate some of the economic impact, CAAMP has proposed allowing first-time buyers to extend their amortization to 30 years, as long as they are qualified by the lender at a 25-year payment. CAAMP notes that the government has already adopted a similar principle by allowing people to take riskier variable mortgages if they qualify at a higher 5-year posted rate.
Rob McLister, CMT