The head of the Canada Mortgage and Housing Corporation (CMHC) gave a candid assessment of the country’s housing market, saying the “party” of homeownership as a sole savings vehicle will come to an end.
Evan Siddall made the comments during an interview with BNN Bloomberg’s Amanda Lang on Thursday.
He said that in many of the world’s major cities renting is the norm, while in Canada, “we glorify homeownership and think it’s the only vehicle for savings.” He added: “I think this party ultimately comes to an end, and the people who are going to get hurt are young people.”
He also described the temperature of the country’s housing market as “lukewarm,” noting that expectations for future growth have eased up. “Part of that is in response to policy actions that people may think are more important than they are.”
And what does he say is the biggest risk factor facing the housing market?
“It is still indebtedness; indebtedness among young people because people tend to default when they lose their job within the first or second year of a mortgage,” he told Lang. “So that’s what we’re worried about.”
He added that the wider economy, due to it being financially leveraged, is vulnerable to external factors—trade wars being a key threat right now. “We don’t know what the next big [headwind] is going to be. We do know that we have fewer arrows in our quiver to respond to it,” he said.
National Vulnerability Moderating
His comments come on the heels of the CMHC’s latest Housing Market Assessment, which lowered its vulnerability rating for Canada’s housing market to “moderate,” down from the “high” rating it had for the past 10 straight quarters.
The report measures four factors in making the assessment: overheating, price acceleration, overvaluation and overbuilding.
CMHC noted the inflation-adjusted average home price fell in Q4 2018 by 5.4% from a year earlier. And while inflation-adjusted personal disposable income dropped by 1.2% over the same period, CMHC said the young adult population grew by 1.9%, increasing the pool of potential first-time homebuyers.
Both Vancouver and Toronto, however, continue to be rated at a “high” degree of vulnerability. While CMHC said Vancouver is seeing an easing of its overheating and overvaluation, “price acceleration and overvaluation continue to be flagged in Toronto.”
In his interview on BNN, Siddall said more housing supply “of almost every type” is needed in both of those markets. He also suggested private capital could be used to alleviate the supply shortage. “Microsoft is investing in housing for its employees in Seattle. Big employers here could do the same thing,” he said. “There are concerns about the affordability of places like Toronto and Vancouver, and CEOs are thinking, ‘Geez, should I move to Mississauga? Should I move to Abbotsford?’ Well, if they invest in housing, they don’t have to do that.”
Comments on the First-Time Home Buyer Incentive
Responding to criticism that the government’s First-Time Home Buyer Incentive (FTHBI), announced in March, will have a minimal impact on assisting first-time buyers, Siddall said it was purposely designed to be “surgical.”
“[The FTHBI] is deliberately designed to be a surgical response to people being excluded from the market,” he said. “And so, because it’s a marginal program, and people are being excluded at the margin, it’s targeted right there. And if it were much larger, it would have an inflationary effect.”
He said the program will have “zero impact” on home price inflation across the country, estimating it to be between 0.2 and 0.4%.
While the equity-sharing down payment assistance program will allow the government, through CMHC, to participate in both house price gains and losses, Siddall said no decision has been made on what the cap on losses would be.
“What I do know is that the government of Canada doesn’t want to profit off this: we don’t want to be sending a signal that prices are going up, so we’re looking at what we can do to navigate that,” he said.