Friday, February 10, 2012

CAAMP: No Reason To Tighten Or Restrict Borrowing

The Canadian Association of Accredited Mortgage Professionals ( CAAMP) is lobbying against more restrictions on borrowing.  Here is an industry update from them

This is their press release statement.
“Based on our research and knowledge of the sector, we see no reason to tighten or restrict access to residential mortgages at this time.”

This following piece one piece may indicate in regards to where the government is looking to restrict borrowing.

4. FURTHER RESTRICTIONS ON ACCESS TO MORTGAGES
Who will be affected?
 -Self-employed borrowers who represent a growing portion of our labour force (currently 2.67 million people, or 15% of employment in Canada)
- New Canadians who can afford a down payment but have yet to build credit and employment history
 -First time homebuyers who want to enter the homeownership market and build equity
- These are not the people who fall in to a sub-prime loan category like we saw in the US; yet these changes will impact them
 -The housing industry is an engine of growth in Canada. If we impede its growth, we will add to unemployment and depress the economy
- If fewer mortgage lenders are able to insure their loans simply because the insurance program has not kept pace with the growth in the mortgage market, then consumers will have less choice when it comes to negotiating a mortgage. Less choice, or less competition, will inevitably lead to higher borrowing costs for the Canadian consumer
- Likewise, if mortgage brokers are restricted in the mortgage products they can offer, consumer choice will be diminished and costs will increase
- This reduced access to capital will make it more difficult for people who can legitimately afford to buy a home
If the Fed's do "tighten" mortgage rules a 4th time since 2008, mortgage rules will most likely revert back to where they were in 2003 with 25 year amort. They may also do away with cash back mortgages and free down payment mortgages as well.   And that is not factoring in a reinstatement of the price ceiling on mortgages that was in place pre 2003..  If the housing market can not handle another round of tightening to somewhere around 2003 levels (and this is with ultra low rates) then it was a bubble.

Anybody who says that this housing boom was not because of easy cheap credit needs to watch this bloomberg clip  TD Bank's CEO says " Canada's housing boom has been the result of low interest rates  and easily available credit."

To me, it is a bubble, built mostly on debt, little on incomes, GDP growth etc.  CAAMP, believes household debt is slowing.  And they are right, but debt is rising faster than GDP.
Debt is rising faster than personal disposable incomes.
Eventually will have to come a time when GDP and personal disposable incomes will have to grow faster than debt.  CAAMP believes otherwise, and wants the debt party to continue.


One thing that CAAMP does not realize is that the housing market, helped by loads of credit, has help inflate Canada's housing related economy, not only in GDP,
but also in the labor market.
While CAAMP is lobbying to not restrict borrowing, there are reasons from unsustainable high house prices to over indebted consumers, to inflated pockets of the economy that the FEDs should " tighten mortgage rules".  CAAMP also has one more thing wrong, the problem is the bubble, the solution is the bust.
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4 comments:

  1. CAAMP makes it seem that "higher borrowing costs for the Canadian consumer" is the worst thing that could ever happen in this country. Yeah it would be horrible if we reverted back to the old days when personal financial responsibility played a key part in the big purchases we make. It's great for Canada when people can live in $400,000 houses and drive $60,000 trucks and all without having one cent to their names before making these purchases. A bit of sarcasm might have seeped into those last couple of sentences. Anyhow, these CAAMP people should pull their heads out their asses and come down to earth where any person with half a brain can look and see that these very same people they are saying they want to help, are toiling and stressed to the core trying to make payments on their mortgages and car loans. Life is hell for lots of people because of the inflation caused by all of this easy credit and anyone who says otherwise is blind or just some aristocrat who is separated and out of touch with this segment of the population which is slowly becoming the majority. Sure, as I said before, there is the matter of personal responsibility when it comes to finance, but as long as associations such as CAAMP keep pushing and encouraging excessive credit consumption, the average naive person will buy into the notion that two or three hundred thousand in mortgage debt is no big deal at all. Time to start listening to the voices of reason which encourage financial prudence and ignore those out of touch groups like CREA or CAAMP that spew their typical BS about how all this debt is somehow good for the economy and is good for the quality of life for Canadians.

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    1. "Time to start listening to the voices of reason which encourage financial prudence"

      There have been few voices, but as of late the volume has been turned up.

      Good comment.

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  2. Now while I generally agree with you on the huge runup in debt in the province as well as the resource boom, the one thing that does have me puzzled is the price to rent ratio. During the american housing bubble, people would often talk of how the house price / rental price ratio detached (went up) during the bubble and sure enough the ratio came back to a more historical level. However, in Saskatoon we have seen a considerable increase in rental prices. In fact, many houses that I have seen can actually be rented for more than enough to cover the mortgage.

    Now I know the first thing you will say is that low interest rates won't last and perhaps they won't but doesn't the increase in rent justify a substantial increase in housing prices?

    It would seem to me that it really comes down to where the population is headed and as you had discusses in your previous article whether the population increases are just driven by the resource and construction boom. If that is the case, however, then that is the real issue that everything hinges on rather than housing prices per se.

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    1. "However, in Saskatoon we have seen a considerable increase in rental prices"

      This increase has only come in private dwellings. And this is because of many speculators who bought near the peak and who need to rent at a high price just to cover costs. Actually many these "specs" are losing money each month. What they have lucked out with, is the growth in population that has kept a low vacancy rate.

      "Now I know the first thing you will say is that low interest rates won't last and perhaps they won't but doesn't the increase in rent justify a substantial increase in housing prices?"

      Honestly, I am not sold on interest rates moving up much in the next few years, but that scenario could be even worse than rates going up. If rates stay low, that means incomes will stall, and Canada would see job losses. Sask. would not be immune.

      A increase in rent prices does justify an increase in house prices but only if incomes follow rents. That is definitely not the case here in Saskatoon. Off the top of my head, since 2006, 30% increase in the average wage, a 70% increase in the average rent price, a 110% increase in the average house price. ( over the long term these three should grow in tandem)

      We have to remember that rents are paid by income while houses are financed by credit. I have showed many times that incomes have not kept pace with house prices and rents. This is not sustainable.



      I might be able to get my hands on credit growth specifically in Saskatchewan within the next month. My guess is that Sask is near the lead in debt growth from 2007.

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