I had a chat with Canada Guaranty CEO Andy Charles today. Like most industry leaders, he’s concerned with maintaining stability in Canada’s high-value housing markets.
As a mortgage default insurer, Charles knows a thing or two about risk mitigation. So we asked him for his take on raising minimum down payments in order to create a risk buffer and slow real estate valuations. He made three points of note:
Regulatory changes over the last several years have made the first-time homebuyer a modest player in the overall housing market:“The changes made to the high-ratio mortgages (first-time homebuyers) the past several years (reduced amortizations, debt servicing restrictions, etc.) have served to significantly reduce the size of the first-time homebuyer segment. It now represents just 30% of Canada’s housing market with the significant majority of home financing utilizing conventional mortgages.”
Increasing the minimum down payment would materially hurt Canada’s smaller urban housing markets:“Raising the minimum down payment to 10% would have the unintended consequence of negatively impacting housing markets in almost all other areas of the country. Home prices are soft and either flat or moderately decreasing in almost every city in Canada other than Toronto/Hamilton and Vancouver/Victoria. Housing markets and first-time homebuyers in Montreal, Halifax, Calgary, Edmonton, Winnipeg, Regina, and Saskatoon, not to mention other smaller cities, would very likely experience negative economic impacts due to increasing the minimum down payment at a national level.”
GTA/GVA price increases are not being driven by the first-time homebuyer:“The large increases in single-family home prices in the GTA/GVA markets are not being driven by the first-time homebuyer with a 5% down payment. The 5% down payment segment of borrowers are generally not purchasing single-family dwellings in the GTA and GVA markets, as a very significant portion of these homes are priced above the $1 million value restriction for high-ratio purchases. Raising the minimum down payment in these markets would have very little, if any, impact on the trajectory of GVA/GTA single-family house prices in the foreseeable future. The average mortgage size of the first-time homebuyer is approximately $300,000.”
Charles added in closing:
“While I share the concerns regarding these specific markets, we take the view that raising the minimum down payment will penalize the first-time homebuyer, risk dampening already soft housing markets in most of the country, and will do little to help achieve the desired public policy of moderating the price growth in the GTA and GVA markets.”
Charles is one of an increasing number of industry leaders publicly weighing in on mortgage policy as of late.