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Despite recent price gains, CMHC expects housing demand to slow

  • Jason Ellis, Managing Director, Capital Markets

Good Morning.

Sorry for the late post.  Time has been at a premium lately.  I am presently experiencing life at a rate of several WTFs per hour.  It’s been a busy week, but it’s all good though.  I didn’t need bail and I don’t have body count, so it could have been worse.  How was your week?

ANYWAY, before this turns into more of a rant than a commentary, let’s talk a bit about the market.

According to the Teranet-National Bank House Price Index Canadian home prices rose again in April.  The Index which measure changes for repeat sales of single-family homes showed prices rose 1.2% last month.  That marks the fifteenth consecutive increase.  Prices were up 2.6% in Toronto month over month or 26.3% year over year.  Bubble?  What bubble?

Despite the most recent price gains, CMHC expects housing demand to slow this year on tightened lending rules.  CMHC released their annual report this week and insurance in force fell again in 2016 and now stands at $512 billion as compared to $526 billion in 2015.  Despite all the negative chatter in the media about housing and ‘tax payer’ exposure to government guaranteed mortgage default insurance, business has been good at CMHC.  Net income in 2016 was $1.31 Billion.  In fact, things are so good that CMHC will actually start paying a dividend to the federal government as early as June.     In the report, Evan Siddall, CEO at the insurer, reiterated his faith in the overall strength of the country’s mortgage market.  So…we’ve got that going for us.

Taking the opposite side of that view this week was Moody’s.  The Canadian dollar and bank debt declined yesterday after Moody’s downgraded the big 6 banks citing household debt and ‘runaway’ housing prices.  The rating agency is concerned that prevailing conditions could leave the banks exposed to losses on lending.  The outlook is also set to negative for all six banks.  I would not start putting my money in the mattress just yet though.  TD’s rating is now Aa2 (the third highest rating).  The other 5 banks were reduced to A1 (the fifth highest).  Canadian Minister of Finance Bill Morneau responded to the news through a spokesperson saying “Canadians can continue to be confident in their banks and in their financial sector which is sound and well capitalized, and has proven its resilience time and time again”.  So take that Moody’s. 

In U.S. economic news, retail sales increased in April and consumer prices rebounded suggesting an acceleration in economic growth and rising inflation that could keep the Fed on track to raise rates again next month. 


5 year GoC bonds are still range bound, but have dipped back below 1.00% after trading as high as 1.06% mid-week.  10 year GoC bonds are trading at 1.55%, down from 1.64% midweek. 

Looking Ahead

I don’t know where rates are going, but according to a trusted source in the TD debt capital markets group, the weather network is calling for sun and a high of 15 in Toronto with a high probability of patio action.  Bring it on!  Treasury Guy could use a cold one.

Have a great weekend,

Treasury Guy