CMHC CEO says low rates won't put stress on overvalued housing market
Canada’s housing market may be “modestly overvalued,” according to the CEO of CMHC, but that’s no reason to fear a painful crash even after last month’s cut in rates.
Evan Siddall, CEO of Canada Mortgage and Housing Corp., says the federal agency's job is to watch for risk factors, but lower rates aren't going to make a big difference.
Last month, the Bank of Canada cut its benchmark interest rate by 0.25 per cent, and mortgage rates fell the following week.
“What the Bank of Canada was concerned about was weakening in the Canadian economy because of the effect of oil prices. They’re doing us a favour in making sure the economy is growing properly and that’s their job,” Siddall said in an interview with CBC’s The Exchange with Amanda Lang.
“Lower rates of course make it cheaper for people to buy houses and we are concerned about that. We’re monitoring it," he added.
The drop in rates comes at a time when many analysts believe Canadian housing markets are overvalued. Ratings agency Fitch estimated prices are 20 per cent too high and even Bank of Canada governor Stephen Poloz has suggested housing is 10-30 per cent overvalued.
“I’m not uncomfortable with a number in that range. We talk about the market being modestly overvalued. I don’t think it leads to a sudden cooling. I think that that kind of overvaluation is normal and the market will correct it the way the market does,” Siddall said.
But he added that the lower rates are unlikely to make a large impact on housing prices.
“We don’t think a 25 basis point cut, not all of which was passed to consumers, is going to be a big factor,” he said.
Concern about unemployment in oilpatch
Of more concern is the impact of falling oil prices, which could eventually lead to widespread job losses.
"The biggest factor for us is a rise of unemployment levels. When people lose their jobs, that’s when they sell houses," Siddall said.
He said CMHC is “keeping an eye” on employment levels in Alberta, Saskatchewan and Newfoundland and Labrador.
If there is an impact on the market, it won’t be until 12 months down the road, Siddall said and that gives CMHC time to react and adjust its policies.
He said arrears on CMHC mortgages are at a low of 0.3 per cent, a testament to both the Canadian desire for home ownership and the health of the Canadian housing market.
Analysts who suggest the federal housing agency should be privatized are overlooking its role in ensuring Canadian homes were not affected by the 2008 financial crisis, Siddall said.
No 'conversation' about privatization
"CMHC is a valuable policy instrument. It’s one of the reasons we had a good crisis in Canada. CMHC played a big part in stabilizing the market," he said.
"The minister of finance has said there is no conversation about privatization that he’s working on or interested in. – I’m paraphrasing – and I think that’s proper policy."
CMHC is working with lenders on ways to have banks take on more of the risk of home mortgages, but says he believes current practices are sound.
Siddall said there’s little risk to taxpayers.
"Certainly the people whose mortgages we securitize conform to very good lending practices and it’s a requirement of OFSI regulation, so I’m not that worried about their practices in fact and certainly it’s not as aggressive as it was in the U.S. at all. People in Canada should not be concerned about that."
