No major changes for housing finance

Canada's Finance Minister Joe Oliver says there will be no dramatic changes while government studies proposals to reduce its role in market

PUBLISHED : Wednesday, 24 September, 2014, 6:07am
UPDATED : Wednesday, 24 September, 2014, 6:07am

Canada will not make any sudden changes to the country's system of housing finance, even as the government looks at ways to reduce its role in the market, Finance Minister Joe Oliver said.

Oliver said that while he is studying proposals, such as the idea of the government passing on more risk to lenders, these are longer-term issues that do not require immediate action. The government guarantees about C$710 billion (HK$5.02 trillion) worth of Canadian mortgages through state-run Canada Mortgage & Housing Corp (CMHC) and private mortgage insurers.

"We're looking at things, but we're not going to be doing anything dramatic," Oliver said in Cairns, Australia, where he was attending a meeting of finance ministers and central bankers from the Group of 20 countries. "We don't see the need for it."

Evan Siddall, chief executive of CMHC, said in a speech last week that his organisation was looking at ways to better manage the government's exposure to the housing market. Siddall outlined how his organisation is "re-examining" its role to ensure that the government is not distorting the housing market by assuming too much risk.

He said that possible steps could include risk-sharing with banks, higher capital requirements or smaller regulatory measures to curb overborrowing by some households.

"We certainly aren't going to do anything precipitous," Oliver said. "You don't want to cause the very thing you are trying to prevent."

He said the government has not made any decisions on the risk-sharing proposal. "Obviously it's one of the things one looks at, but I don't want to signal we're doing anything," he said.

Canadian housing has so far defied predictions of a correction with recent data showing an acceleration in resales, starts and prices.

Policy makers have downplayed worries the market is at risk of a collapse, forecasting instead a soft landing. Oliver reiterated that he does not see a housing bubble.

In his speech, Siddall said that his organisation's research shows that even with some overvaluation, "there are no immediate problematic housing market conditions at the national level". If prices do not moderate as predicted though, Siddall said, it would strengthen the case for additional measures to cool the market.

"Our educated opinion is that growth in house prices in Canada will moderate," Siddall said. "If we are wrong, and price growth remains strong or accelerates, we may need to look to macro-prudential counterweights to avoid excesses."

Until now, the agency has been taking smaller measures to remove some of the excesses from the market and reduce the amount of insurance it has in force, which is capped at C$600 billion.

In June, it announced it would no longer insure financing for condominiums. In February, the agency said it will increase premiums on mortgage insurance by an average of 15 per cent. In 2012, the government gave the country's banking regulator new powers to oversee CMHC.

CMHC also is planning to increase its capital holdings to protect from insurance losses and has done stress testing that shows it would have survived a US-style downturn in the housing market, Siddall said.

CMHC insures mortgages against default, and its insurance is fully backed by the federal government. By law, Canadian mortgages that have less than a 20 per cent down payment must be insured.

Bank of Canada governor Stephen Poloz said yesterday that while housing remains a "vulnerability" for Canada, "we don't see the housing market as particularly hazardous and we certainly don't consider it to be a bubble".

"We're not overly concerned but monitoring it very carefully," Poloz told reporters in Cairns. "Over the course of the summer there was no perceptible reduction in household imbalances, while during the first half of the year we had seen a modest constructive trend."

While no major policy changes are planned, Oliver said there could be similar smaller steps that can be taken if warranted.