First time home buyers are fucked: CMHC tightening rules

[Buster]

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No, they’re trying the only thing they have left to curb the home prices in markets that continue to be hot so they can say they did their job

Gov'ts are so shitty at trying to manipulate economies. (Well they are shitty at everything, but particularly this).

They need to keep rates low to help the economy presumably, but they need to cease and prevent malinvestment into the residential RE sector.

[Misterman]

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That's not the claim I'm making. The claim I'm making is that the gov't charges less for the insurance than it should. (By should I mean what the market would charge.) This is a subsidy. It's basically their mission statement - to provide borrowing opportunities for people where it would otherwise be too expensive. I honestly don't see the controversy here.

I guess the controversy is just that you don't know what you're talking about in this case then. Saying that private would charge more simply because they're a corrupt price fixing garbage industry, and not because of a math equation, adds no value to your argument at all. You cannot avoid the current math of CMHC making billions in profits, and tell us that somehow private would need to charge more. They can lie about their mission statement all they want, it doesn't make your argument any more valid.

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Gov'ts are so shitty at trying to manipulate economies. (Well they are shitty at everything, but particularly this).

They need to keep rates low to help the economy presumably, but they need to cease and prevent malinvestment into the residential RE sector.

Which is why it's more prudent to just lower the debt service ratio and let the economy figure itself out. I still have no idea how a car dealer can just approve you for a 1000$/month car payment when you have like 3000$ a month in income?

[Buster]

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I guess the controversy is just that you don't know what you're talking about in this case then. Saying that private would charge more simply because they're a corrupt price fixing garbage industry, and not because of a math equation, adds no value to your argument at all. You cannot avoid the current math of CMHC making billions in profits, and tell us that somehow private would need to charge more. They can lie about their mission statement all they want, it doesn't make your argument any more valid.

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Which is why it's more prudent to just lower the debt service ratio and let the economy figure itself out. I still have no idea how a car dealer can just approve you for a 1000$/month car payment when you have like 3000$ a month in income?

Risk has a cost. Pricing risk is one of the most important functions of capitalism.

If risk has a price, and you purchase that risk for less than the value of that risk, then you are subsidizing the seller of the risk. The amount of revenue generated is only relevant as it relates to the amount of the risk coming back the other way.

The CMHC creates and insurance product against the risk because otherwise the banks would need to charge higher rates for mortgages to compensate for that risk.

These are very basic concepts.

[arcticcat522]

I see both sides if this. However, if CHMC is making billions, (haven't looked into it) wouldn't that imply the risk to the banks is overstated?

[Buster]

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I see both sides if this. However, if CHMC is making billions, (haven't looked into it) wouldn't that imply the risk to the banks is overstated?

No

[Nakadah]

What I have difficulty understanding is why so many people are so emotionally attached to the value of their homes and treat it as an ATM machine... Why not focus on overall quality of life? And how do you come to the conclusion that in Canada (including Calgary) residential real estate is not overvalued? What metrics do you use? Income Growth? Unemployment? Employment Participation? Unexpected Inflation?...

[mazdavirgin]

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I see both sides if this. However, if CHMC is making billions, (haven't looked into it) wouldn't that imply the risk to the banks is overstated?

Enron was making billions till it wasn't.

To further manage the risk to our insurance business,and ultimately taxpayers, during this uncertain time, we have also suspended refinancing for multi-unit mortgage insurance except when the funds are used for repairs or reinvestment in housing.

https://www.cmhc-schl.gc.ca/en/media...iting-criteria

Just in case people still have some illusion this isn't related to "taxpayers".

[ExtraSlow]

There's no "good" measurement of how over or undervalued a particularl housing market is. Average home price to average income is very flawed, but probably most widely used.

[Misterman]

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These are very basic concepts.

Quoted for clarity.

[Misterman]

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I see both sides if this. However, if CHMC is making billions, (haven't looked into it) wouldn't that imply the risk to the banks is overstated?

Yes. But what he is trying to say is that if everyone with CMHC insured mortgage defaulted. Then CMHC wouldn't be able to cover and it would become a massive liability for the government. Even though the chances of this are zero, or even that defaults ever rise to the point CMHC could not cover which is a massive increase in our default rate, or that the actions they're installing actually increase the likelihood of an increase in default rates. That makes CMHC a government liability, and justifies the brain dead moves in regards to home ownership rules.

[Buster]

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Yes. But what he is trying to say is that if everyone with CMHC insured mortgage defaulted. Then CMHC wouldn't be able to cover and it would become a massive liability for the government. Even though the chances of this are zero, or even that defaults ever rise to the point CMHC could not cover which is a massive increase in our default rate, or that the actions they're installing actually increase the likelihood of an increase in default rates. That makes CMHC a government liability, and justifies the brain dead moves in regards to home ownership rules.

No, I don't think you understand how the market functions in this scenario. Risk has a price. People look at buying risk and they attach a price to that risk. (Risk of defaults, etc). The market calculates what you are describing and determines the price of all of those scenarios costing money and then the consensus determines its value. Your view is that the probability of loss is zero. So your contribution to the consensus would put downward pressure on the price of that risk. Someone else might view the risk to be greater and put upward pressure on that risk, just like any market.

If a government arbitrarily prices that risk at a number that is below the market consensus, you will see them crowd out market based pricing and you have a subsidy. This is what has happened. The gov't has ensured that riskier borrowers aren't exposed to the market and won't see rates which compensate for their elevated risk. Not only is this implied by CMHC, it's explicit.

[ercchry]

We give people with beacons in the 500s sub 5% rates with no insurance... up to 80% of value... hell the “cleaner” ones scored sub 4% earlier this year

I for one would be more worried about my bank account if it was over $100k if cmhc goes tits up than cmhc going tits up. If you’re this concerned with housing in the country I’m going to be in your backyard with a metal detector looking for your stash of gold

[Buster]

I'm not that worried about a housing catastrophe.

I just wish the govt would stay out of the market

[Misterman]

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No, I don't think you understand how the market functions in this scenario. Risk has a price. People look at buying risk and they attach a price to that risk. (Risk of defaults, etc). The market calculates what you are describing and determines the price of all of those scenarios costing money and then the consensus determines its value. Your view is that the probability of loss is zero. So your contribution to the consensus would put downward pressure on the price of that risk. Someone else might view the risk to be greater and put upward pressure on that risk, just like any market.

If a government arbitrarily prices that risk at a number that is below the market consensus, you will see them crowd out market based pricing and you have a subsidy. This is what has happened. The gov't has ensured that riskier borrowers aren't exposed to the market and won't see rates which compensate for their elevated risk. Not only is this implied by CMHC, it's explicit.

I don't think you understand how the big picture functions in this case. The majority of the potential risk that would come from a private company calculating this, is from the government itself since they determine interest rates! What insurance company wants to be left holding the bag when the liberals print a bajillion dollars for QE at 0% interest rates, and then have to raise interest rates to 20% to curb inflation. Therefore you have a government controlled insurance company that has to exist since no private company wants the government putting their business at risk, much like our current resource development issues in Canada. And since the government has a virtual monopoly on this business, they use it as a revenue stream.

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I'm not that worried about a housing catastrophe.

I just wish the govt would stay out of the market

I'm glad we can agree on this at least.