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OSFI changes to insurer capital requirement test

The latest in mortgage news: OSFI unveils minor changes to insurer capital adequacy test

On Wednesday, Canada’s federal banking regulator unveiled revisions to its Mortgage Insurer Capital Adequacy Test (MICAT) for insured variable-rate mortgages (VRMs).

The premise of the change from OSFI means the calculation used by Canada’s mortgage default insurers to determine their capital reserve requirements for residential VRM loans must be based on an amortization of no more than 40 years.

The change is in response to rapidly rising mortgage rates, which have resulted in temporarily higher amortizations for some variable-rate mortgage holders with fixed payments. In some cases, amortizations are temporarily being stretched beyond 40 years until such time as the payment is reset to align with the original amortization period.

“The MICAT framework is responsive to risks associated with differing mortgage amortization periods of up to 40 years,” OSFI explained in its release. “It was not, however, designed or calibrated for situations in which mortgage amortizations are temporarily extended, in some cases well beyond 40 years.”

“The revisions and interpretations set out in this Advisory address these matters,” the regulator added.

Homeownership rate on the decline: StatCan

Canada’s homeownership rate is on the decline, according to census data released last week by Statistics Canada.

The proportion of households that own their home (both outright and with a mortgage) fell to 66.5% in 2021, down from a peak of 69% in 2011, StatCan said. Canada currently has the 23rd highest homeownership rate among OECD countries, with a rate below the OECD average of 71.5%.

The decline was more prevalent among young Canadians between the ages of 25 and 29, with the homeownership rate falling to 36.5% from 44.1% in 2011.

In terms of numbers, 10 million households owned their homes as of 2021, “which is more than at any point in the country’s history,” StatCan noted.

“These recent changes in homeownership have happened while the shares of people living alone or with roommates have been rising as reported in the census families and households release,” the report added. “People who live alone or with roommates are less likely to own their home than other households such as couples with or without children.”

Meanwhile, the number of renter households (+21.5%) grew at more than twice the pace of owner households (+8.4%) between 2011 and 2021.

“The growth in the rental rate reflects the increased construction of multi-unit buildings, such as apartments and condominiums,” StatCan reported.

Prior to 2011, apartments accounted for less than 40% of building permits, but since the start of 2011, multi-unit building permits have accounted for 68.1% of units created, and 73.2% in 2021 alone, it added.

“These construction and real estate trends address the greater demand for these types of dwellings, fuelled by population growth through immigration, an aging population and a gravitation towards the downtown lifestyle—particularly among younger Canadians.”

Speaking of immigration…Canada saw its fastest population growth since 1957

Population growth–an important component in discussions about the real estate and rental markets, rocketed higher in the third quarter.

Canada’s population stood at 38.9 million as of July 1, according to data from Statistics Canada. That represents an increase of 284,982 people, or 0.7%, since April 1.

This is the highest quarterly growth (in number) since 1949, when Newfoundland was added to Confederation, and the highest percentage growth since 1957.

Immigration accounted for 94.5% of that growth.

In terms of inter-provincial migration, Ontario (-21,008), Manitoba (-2,891), and Saskatchewan (-1,948) saw the highest net losses. Nova Scotia (+6,159) and New Brunswick (+4,228), meanwhile, had the highest net gains.

Bank of Canada to start publishing summaries of rate-decision meetings

The Bank of Canada announced Thursday that it plans to publish a summary of deliberations from its policy meetings starting in January.

The move comes following a review of the central bank’s transparency practices carried out by the International Monetary Fund.

While the IMF generally provided high marks in its report, it noted that the BoC “does not publish the minutes (or a summary) of monetary policy deliberations, a practice considered as the golden standard among inflation targeting central banks,” including the U.S. Federal Reserve.

Among its other key recommendations, the IMF report said the BoC should consider enhancing its communication on ex-post evaluation of the policy decisions, disclosing alternative policy scenarios, and improving the timeliness and accessibility of published macroeconomic projections.”

Teranet-National Bank House Price Index sees record price drop in August

The Teranet-National Bank House Price Index recorded its fourth consecutive monthly decline in August⁠—and the largest since the index began in 1999.

The seasonally adjusted Composite index was down 2.1% from July to August, with 9 of the 11 census metropolitan areas (CMAs) tracked seeing price declines. The previous record for the largest monthly drop was set in July 2010 when the index was down 1.3%.

On an annual basis, the index was up 8.9% from August 2021, but marks the fourth consecutive month of lower growth than the previous month.

“August’s data were also unique in that the declines extended to almost all the 31 cities covered by the index, except for the three CMAs located in Alberta (Calgary, Edmonton and Lethbridge), which is unprecedented,” Daren King, an economist with National Bank of Canada, wrote in the report. “The reason for these isolated increases is obviously the high price of energy and many commodities that drive the economy in this province.”

The composite index has now fallen 4.1% since peaking in May, with the largest declines seen in Abbotsford-Mission, BC (-14.9%), Brantford, ON (-13.6%), Oshawa, ON (-13.3%) and Barrie, ON (-13.1%).

“As the Bank of Canada continues to raise its policy rate into restrictive territory, we expect the composite index to decline from its peak reached earlier this year by 10%-15% by the end of 2023,” King added. “This assumes a policy rate that tops out below 4.0% and a Bank of Canada that begins to lower interest rates in the second half of 2023.”