CAAMP: Major Job Losses From Amortization Change

Job LossKilling 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.

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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

  1. Rob, your closing question (continue to temporarily prop up an unbalanced industry vs. accept the pain of rebalancing) seems rhetorical, i.e. the answer is obvious.
    However, I’d like to question the initial premise that the full weight of volume reductions can be laid at the feet of the amortization decrease. It seems to me there were clear signs of trouble on the horizon before that change was announced.

  2. And exactly how is CAAMP able to determine that the slowdown in sales and the accompanying job losses are solely due to the mortgage rule changes? There were no other variables at play (high prices perhaps)?

  3. The mere fact that a small change in amortizations and lending rules (not a problem for any qualified buyer) would have such a dramatic effect proves how unstable the system was/is.
    There are no painless ways forward. Either accept the correction that is underway, or pump up the system some more and accept a bigger correction later.

  4. “your closing question (continue to temporarily prop up an unbalanced industry vs. accept the pain of rebalancing) seems rhetorical, i.e. the answer is obvious.”
    The outcome from here is in no way obvious. What if the housing market simply goes sideways until the fundamentals catch up? If you think you’re smart enough to know where home prices will go, you’re way dumber than you think.

  5. Small Town Realtor, by “the answer is obvious”, I mean that imbalances will work their way out of the system regardless of further intervention. (I see the reduction of amorts as a decrease in gov’t intervention, not an increase. We are returning to normal, after dabbling ill-advisedly in serious excess.)
    Canada’s economy is not healthy as long as 20% of its population is employed in building, financing, and re-selling homes. Attempting to support that 20% level is a fool’s game.
    I do not know where home prices will go — that’s another subject — but since we all have to live somewhere we have no choice but to pick a horse. Mine is rented.

  6. Recall that this was the fourth change in 4 years. CAAMP’s Fall 2012 report (which I wrote) found that the first three changes had minor consequences for mortgage qualification. The fourth change was the big one.
    Also in response to other comments above – the analysis in this new report compared a simulation of what “should” have happened (based on the economic conditions that have existed, and using an economic model) versus what actually happened. The difference between “should” and “actual” is the impact of non-economic events – i.e. the policy change. Will

  7. To add to Many Franks, I agree that shortening the amort to 25 will likely have minimal impact on jobs in the housing market. In order to keep houses affordable and people buying housing long term, price increases need to be curtailed. When I started out in the industry 15 year ago we had 25 year amortizations (in fact we had them until about 5-6 years ago) and the economy move along just fine. If we want sustainable long term growth, fiscal responsibility has to come into play here. If we had kept moving in the direction we were going 4-5years ago, we’d have people with 40K jobs purchasing million $ homes. Imagine the impact of that when rates finally increase!

  8. “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.”

  9. Another comment from the author. It takes a while for a drop in sales to translate into lower prices. The sales slowdown means that each month fewer homes are removed from the available inventory, and the supply of active listings gradually rises. It might be late spring or even the summer before there is enough supply in the market for prices to start falling. Will Dunning

  10. Will, you’re assuming that 1) your model is accurate, and 2) the only relevant change differentiating “should” from “actual” is the amort change. What was the “status quo” prediction made by your model? If continued price increases and steady sales volume, why? What about OSFI stated income changes? CMHC bulk insurance limits? Both changed considerably in the months leading up to the 25-year amort limit being reintroduced, and had a visible impact on stats in Vancouver prior to amort changes being announced.

  11. Read the third paragraph. Is doesn’t get any clearer than that.
    “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.

  12. And I repeat, where does it say the sales slowdown is solely due to the mortgage rule changes?
    The reference you quote speaks about job losses, not sales.

  13. Oh come on Dave, you can read…
    “The sales plunge has obvious economic implications, not the least of which is to employment. ”

  14. Yes, I do like to think I can read, but I can’t say the same for you wetcoaster.
    The word “implications” denotes effect, not cause.
    Need we beat this horse any further?

  15. So, I guess the logical conclusion is to create 0% down, 100 year mortgages. Hey, why not just make interest-only mortgages guaranteed by the CMHC and Canadian taxpayers. That would create tons of jobs in Canada.
    The problem was the Conservative government changing the rules to include 0% down/40 year amortization mortgages backed by CMHC. Whenever you use housing and mortgage markets as a a macro-economic tool, it becomes very dangerous.

  16. Will,
    If your projection is even half right, this is shocking. To me it’s a zero sum game. People either pay high prices as owners or they pay high rents as renters. If demand is extreme for housing, and Ottawa uses mortgage rules to shut people out, people will jack up rents. This puts us no further ahead in the long run because higher rents also promote higher home prices.
    The problem is not amortizations or down payments being too loose, it’s supply being too tight!

  17. >> The fourth change was the big one.
    But the actual changes weren’t that big. Small tweaks to the amortization (like already happened twice before), and some minor changes to the qualification and HELOC limits.
    I don’t see that the magnitude of the July 2012 tightening was much different than previous rounds. It is more likely that it was the straw that broke the market’s back.

  18. “it’s supply being too tight!”
    And yet, MLS listings have been higher than it has been at this time in the last decade.
    Day dream much? Wake up, reality is harsh.

  19. The stubborn refusal of the economy to grow 15% per year every year is also costing millions of jobs in Canada. Won’t someone send a minister down to set the economy straight? Or if that fails we can at least pretend for a decade or so.

  20. So if “190,000 jobs will be lost between 2013-2015 due to the maximum amortization being cut from 30 to 25 years,” how many jobs were gained when mortgage rules were loosened in 2006?
    Are not the jobs that will be lost in 2013-2015, basically, the same jobs created when mortgage rules were loosened? Now we have an economy that is more reliant on housing than ever before, to support GDP and labor growth.
    In reality, mortgage rules of today are basically at levels pre 2006 except that we are enjoying mortgage rates below 3%. In 2006 the average 5 year fixed mortgage rate (discount) was just over 5%.
    So if first time buyers are having trouble entering into the housing market, the solution is not longer amortizations, it is lower prices.

  21. It’s not all about first time buyers. As a home owner, I don’t want to see lower prices, and neither do 99% of the other 10 million home owners. Lower prices are NOT the answer.

  22. “But the actual changes weren’t that big.”
    You’re right, the drop to 39% GDS and 25 year amortization wasn’t big, it was HUGE. It slashed the amount people qualify for by 20%!
    How is that not “big”??

  23. On the contrary, Ottawa’s procyclical changes could actually precipitate a collapse.
    Four doses of regulation have more than made up for the easy policy pre-2007. At some point, you have to let markets be markets and find their own equilibrium.

  24. As soon as the Minister of Finance ANNOUNCED the change at the end of June of 2012 for CMHC, the effect was IMMEDIATE to our mortgage business for buyers within two weeks – the OSFI rules became effective in autumn – but the full scale decrease had already happened by summer – and so Will Dunning’s report confirms the decrease to 25 year Amortization periods from 30 years has a HUGE effect on mortgage qualifying, and has been this way into March of 2013. Will Dunning’s report tried to show that this decrease is not a normal market correcting decrease but an artificially policy created decrease that will have drastic effects reaching into other areas of the economy and affecting employment. Lack of sales will have some sellers reduce their asking prices – but probably not enough sellers will do this to reduce average prices overall – as we have now seen since the middle of 2012. Many sellers don’t have to sell and have simply discontinued their listing rather than accept a lower price. People that say 25 year Amortizations were the maximum for the longest time – and should be again – do not take into account the average price of real estate at THAT time – and the average incomes at THAT time. With realty values so much higher now than even 5 years ago, and average incomes higher – but not high enough – one possible solution is longer amortization periods for qualifying. Nothing is to stop any borrower from paying their mortgage off faster than the amortization period – except their lack of funds. To help our first time buyers, mostly young people entering the work force, CMHC rules should go back to the 30 year and even 35 year amortization periods for this class of buyers – they already have enough debt forced upon them with student loans, etc. Our young people face a choice of high rent or mortgage payments or living with parents if available. Liquidity of entry level homes to first time buyers would then allow sellers of these homes to seek a more suitable housing alternative, and help many families both starting out and families downsizing. The reasoning of limiting mortgage debt with these new rules to control household debt is a deflection. Many people are already in debt and are trying to manage the best they can financially and most are not irresponsible. Many posts suggest rampant extravagance leads to large household debt – which I believe happens in a minority – but clearly sticks out. Credit card, vehicle financing personal loans and unsecured lines of credit have not been successfully restricted in the past by governments and will increase household debt much, much FASTER than any mortgage debt has. In fact, good financial planning strategy is to pay off higher interest debt [ credit cards, personal loans, etc. ] with lower interest debt [ mortgages ] if incomes are not able to do this alone.

  25. “In order to keep houses affordable and people buying housing long term, price increases need to be curtailed.”
    Or employment and incomes must rise. Try not to leave out important facts.
    On another note, please show us how someone earning $40K can buy a million house. What a goofy thing to say. You must have a lot of declines if that’s how you calculate TDS.

  26. “In order to keep houses affordable and people buying housing long term, price increases need to be curtailed.”
    Or employment and incomes must rise. Try not to leave out important facts.
    On another note, please show us how someone earning $40K can buy a million house. What a goofy thing to say. You must have a lot of declines if that’s how you calculate TDS.

  27. “In order to keep houses affordable and people buying housing long term, price increases need to be curtailed.”
    Or employment and incomes must rise. Try not to leave out important facts.
    On another note, please show us how someone earning $40K can buy a million house. What a goofy thing to say. You must have a lot of declines if that’s how you calculate TDS.

  28. I agree that loosening credit then tightening it is very destabilizing for the market. This was undoubtably an experiment gone wrong.
    However the recent 4 rounds of tightening still don’t bring us back to the restrictions of the early 2000s. Back then we still had a price ceiling on the CMHC.

  29. People that say 25 year Amortizations were the maximum for the longest time – and should be again – do not take into account the average price of real estate at THAT time – and the average incomes at THAT time.
    Surely you can see that loosening credit is the primary reason why house prices have increased as much as they have.. If the CMHC regulations weren’t changed, we wouldn’t have this problem.
    In fact, good financial planning strategy is to pay off higher interest debt [ credit cards, personal loans, etc. ] with lower interest debt [ mortgages ] if incomes are not able to do this alone.
    If your income is not enough to pay off your credit cards, you are living far beyond your means. Rolling that debt into a mortgage is just postponing the inevitable.

  30. You’re right, the drop to 39% GDS and 25 year amortization wasn’t big, it was HUGE. It slashed the amount people qualify for by 20%!
    Only the people who were already on the raggedy edge. Hence my point.

  31. Finally a light in the regulatory forest!
    I too believe the focus of the Minister and the media is to deflect and misdirect people’s attention from the real issue that real disposable income – as a result of manufacturing job losses (secondary industry) and steadily increasing taxes (including federal) – has been steadily declining under the Harper government. And will intensify if their recent comments are any indication.
    The changes imposed on self employed individuals – proven income over stated income through the NOA – is more about collecting a larger share of taxes than it is about mortgage qualification. My question is why is the mortgage/lending industry responsible for helping the government collect/increase taxes? Because the ‘read my lips – no new taxes’ mantra of the Harper government is an unrealistic obession of a primary industry focused government. They sought a higher Canadian dollar to generate more resource income – destroying our manufacturing sector in the process. The other primary industry – construction – has now been crippled. The service industries – every thing else – which are supported by the manufacturing sector are on very shaky ground and once job losses start to occur here, we will be in a full scale recession and the rest of the world won’t care!
    Will’s analysis is spot on – except I think he is overly optimistic or extremely focused.

  32. Wow. Amazing to see how much this topic generates. I’m no expert in the market. However, I’ve seen first hand EXACTLY the situations brought up by Mr. Dunning, and highlighted by Another Viewpoint. I don’t have all of the answers. However, for those of you that sit on house prices slightly north of a Western 649 lottery win (hopefully we never get to LOTTO MAX prices!), and those of you that believe that amortizations should be “like they used to be” COULD be part of the problem. In my studies of programming or IT, if I can’t tell the effect of changing a variable slightly to a program, I try to increase that variable to one extreme or the other, and see what difference it makes. Can anyone tell us what would happen if we decreased the maximum amortization to 10 years? Or if we increased it to 55? If so, would it create the difficulties specified by both points of view? For those of us who aren’t experts, it would help to at least start there. Granted, no one who purchased a 1978 shanty-town special at < 100K WANTS to give it up for less than 4.5 times the price . . .keeping in mind they may have spent at least twice as much to fix it up. Now, I'm not saying that access to easy credit doesn't inflate things. This seems relatively obvious. However, the fact that a person HAS access to purchasing power doesn't necessarily imply that they will MAX themselves out. That is, unless it's the LOTTO MAX (*ugh* my ticket still didn't win)

  33. I’d like to have Wills crystal ball! I wonder how he knows how many job losses there are going to be over the next 2 years? does he also know what interest rates are going to do? and house prices? That’s quite a prediction…

  34. debt forced upon them??? who forced them to take on student loans? I worked while in highschool and in summers, with the intent of saving for university. My mom too saved for years to “assist” me. I graduated after 5yrs of university and 2 degrees with zero student loans. Savings is the answer and no one is teaching that to kids. Save for school, then save for a starter house. Stop buying $5 coffee, paying $100 phone bills and spending money you dont have, and then you can stop blaming others for your finances

  35. Not for you. Nor for those other 10 million home owners, like you said. Unfortunately, even though it means that a great deal of people may see property values sink slightly, lower prices are the answer. Remember that we’re not talking about a major drop that would cause a crash; we’re talking about a correction. And even then, probably only in major centres such as Toronto and Vancouver, since other areas, especially outlying areas, seem to be doing just fine.

  36. Very good point RR. If you take a look at section 4 of the Fall 2012 report for CAAMP, there was a short discussion that housing starts will be reduced, meaning slower growth in total housing supply, leading to lower vacancy rates and higher rents, but that effect comes farther down the road. One of the points I make in my work on rental markets (another part of my consulting business) is that a key factor is how much total supply is added via new construction, and any policies that artificially constrain new construction or artificially raise prices has negative impacts on home buyers and renters. I think you and I might be on the same page on this point.

  37. Two points here – in terms of rental market outcomes, I have found that resale activity and resale inventory is irrelevant – what matters is how much the total housing supply is growing, relative to how much the total demand for housing is growing. Second point, for price change in the resale market, what matters is active listings, not new listings, but unfortunately CREA only publishes new listings. I have been quoted twice in Huffington Post in the past week – there is more discussion there, in particular that I expect active listings will gradually build during the coming months.
    I’m going to bow out of this discussion at this point – have to do some paid work so I can feed the kidlets. Thanks for listening.

  38. A small change? Seriously? What have you been smoking?
    While the intent of the changes were meant to curb speculation, the shotgun approach of the rule changes affected regular joes more than the speculators.

  39. In reply to comments from LS :
    a) Reasons why property values have increased are very complex with many factors that contribute to it – I cannot disagree or agree with the simplified statement that it was due primarily to “loosening mortgage qualifying ” as suggested, although it certainly will be one of the factors.
    b) Debt consolidation by using a mortgage does not postpone ” the inevitable ” for clients that don’t have enough income to retire their credit card balances and vehicle / personal loans in full. Households making the same payment amount to their sole debt, now just their mortgage after debt consolidation as they previously made to their mortgage plus all other debt – have paid retired their total debt sooner due to more flexible cash flow. Seen this time and time again. Your point is valid for some clients that have unplanned events occur such as job loss, marriage breakdown, or lack of expenditure planning, etc. Yes, in these situations, they have now been forced to live beyond their means – not by their choice. There are also many young people that have large debt when they finish post secondary education that are already forced to live beyond their means by the cost of living and constantly needing financial help from family as one example. Growing numbers of seniors are now carrying debt into retirement for many reasons – mounting medical costs for caring for their parents, themselves – helping kids, etc. as another example of being put in situations where many seniors now live beyond their means.

  40. house is a basic family need & it was a very wrong decision by the government to loosen the restrictions in the first place. look around you average people cannot buy a house anymore without taking huge debt. only banks win. it requires a lot of discipline to pay down debt. when you cant even save 10% .why should the tax payers guarantee your mortgage.

  41. That’s rhetorical exaggeration, not a straw man. From the bottom of the post:
    “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.”
    This is a ploy to reinflate sales volumes for the sake of those employed in real estate, home building, and especially financing, on the backs of first-time homebuyers. As mortgages extend into longer amortizations, the balance of payments begin to shift overwhelmingly into interest.

  42. The fact that someone has a GDS over 39% or uses a 30 year amortization doesn’t put them on the edge. That statement shows a clear ignorance of mortgage lending.

  43. “If your income is not enough to pay off your credit cards, you are living far beyond your means. Rolling that debt into a mortgage is just postponing the inevitable.” -LS
    Nothing more to add. You’ve said it all. Until household expenditures are calibrated back to household revenues, the economy will continue to tither on the brink of chaos, because borrowed prosperity is NOT sustainabile prosperity. We’ve already seen this in other countries, and Canada does not have to go through the same pains before it can learn the lesson.
    And yes, shuffling debt from credit cards to mortgages is exactly that -SHUFFLING debt. It does not eliminate debt. It does not make it cheaper -not in the longer run. And most importantly, it does not help the debtor get a proper perspective -of the kind that most people need before they find the discipline to make prudent fiscal decisions.
    Finally, at current income levels, house prices definitely need to drop. A household earning $80K should not have to pay upwards of 1M for a residence. What we have now is a bubble.

  44. That makes no sense. How does CAAMP’s proposal “reinflate sales volumes” when people are still forced to qualify at 25 years?

  45. Everyone takes on debt at some point in their life. We don’t need people like you dictating morality. We need solutions that let people reduce their interest expense. Consolidating debt does exactly that.
    Secondly, no one has to pay $1 million dollars for a residence. Don’t waste people’s time with pointless exaggerations. 80% of the Canadian housing market is affordable. For that other 20%, it just means you can’t live inside Vancouver or Toronto city limits. If you find that objectionable, move to another city!

  46. gokou3 stated that listings are at decade highs, not new listings. So yes, he is correct (at least for the Vancouver market).

  47. Northern Belle, that appears to be the premise of CAAMP’s proposal. “The sales plunge has obvious economic implications, not the least of which is to employment. […] To mitigate some of the economic impact, CAAMP has proposed allowing first-time buyers to extend their amortization to 30 years…”

  48. Both gokou3 and you are wrong again.
    Canadian listings are not at decade highs. Show me your source. You’re obviously not using CREA numbers. Are you talking about private listings? FSBOs?
    Vancouver is only 6% of the national market. What’s you’re point?

  49. Isn’t it interesting that for pretty much every product, higher prices lead to lower consumption. Except somehow, higher prices in housing over the last decade have been leading to high consumption. And that’s not some kind of red flag that there is distortion somewhere?
    That price fixing by homebuilders in Toronto is probably not helping, either.

  50. Active listings are up 10% in Toronto year on year according to TREB. Up 10% in Montreal year on year via GMREB. So, active inventory is up in the three largest cities.

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