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Issues in the Canadian Mortgage Market

April18
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With a high level of growth and evolution in a particular industry there come a lot of issues and problems as well. The Canadian mortgage and housing market was growing exponentially. This was cause for wide-spread fear among economists and analysts. Even the Canadian government was trying to introduce control measures that would help them in sustaining the growth.

The Canadian Mortgage and Housing Corporation acts as the regulatory body in this sector. Part of their responsibility is to monitor the Canadian mortgage trends. The guidelines to follow are defined by the government itself. The Canadian mortgage rules were seen to be quite tough on the standards for mortgage qualification. The mortgage rates were kept low.

However, the rising economic instability in the global economy led the Canadian government towards revising these policies and standards. This was in order to avoid economic turmoil in the country as well as reducing the pressure and burden on the economy caused due to the mortgage sector. The main issues with the Canadian mortgage and housing industry are both regulatory and operational. These issues are combined with the overall economic scenario.

Changing Trends

The Canadian mortgage trends were changing drastically as a result of the demographic changes in particular. Global economic changes were also having an effect on the trends. However, the demographic changes had taken up the government’s undivided attention. This was primarily due to the large number of immigrants that needed accommodation. The international immigrants had been taking up mortgages in order to finance housing in the country. The increase in the numbers of people entering the country looking for employment had a direct impact on the Canadian mortgage and housing market.

In addition there were a large number of people migrating within Canada mainly towards the urban centers. This caused a bit of a problem for the Canadian Mortgage and Housing Corporation. This regulatory body was already busy trying to control international immigrants. With more and more locals coming towards the major cities, housing and real estate market in these cities was experiencing a huge demand and supply dilemma.

The number of new family start-ups was increasing in the country. This was in the case of both the locals and the immigrants. New families are always looking for a place to settle down. In order to start their new life these people prefer to go for the best options available to them. They often ended up taking up high mortgage amounts and this increased risk of default. The other demographic change was the rising number of baby boomers retiring or near retirement. These people too want to settle down comfortably after having gone through all major stages of their life and career. They needed mortgages too for financing their homes.

On the economic front, the global crisis was starting to take toll. The Euro debt crisis had an impact on the Canadian economy as well. This is because the EU is a huge market for Canadian exports. When the European economies faced problems the ripple effect created affected Canada too.

The United States was having problems of its own. The economic turmoil and the continued war that the US faced brought instability to Canada. The subprime crisis as experienced in the neighboring country was being feared to hit this country any time soon.

The recession hit Canada and brought about a major economic downturn on the Canadian mortgage and housing market. The unemployment rates started going up and more people started to default. The Canadian mortgage trends were already a cause for concern and this new development required immediate action by the government.

Regulatory

The Canadian Mortgage and Housing Corporation is the regulatory body established by the government. This was done after the Second World War when the soldiers were returning and needed housing and accommodations. Over the course of time, even the roles and responsibilities that have to be fulfilled by the CMHC have evolved. They are now responsible to control the Canadian mortgage market. CMHC provides insurance for high-ratio mortgages and also evaluates the qualification standards for mortgages to finance housing in Canada.

The CMHC has to follow the Canadian mortgage rules and provides an extensive research facility to the government. This helps the government in evaluating the market changes and to actions accordingly. The CMHC also overlooks housing projects in the country in addition to providing financial solution for them.

The issue faced by the CMHC is that they are the sole regulatory organization in the Canadian mortgage and housing market. They have a lot of responsibilities and duties to look into. In this context the exponential growth in the market was a problem they could not control alone. The CMHC follows the guidelines provided by the Canadian mortgage rules set by the government. This includes the new mortgage rules in Canada introduced in 2010 and 2011. It is difficult for the CMHC to control all aspects. They only have the authority provided to them by the government and therefore, can take no measures without their approval.

Operational

The Canadian mortgage news suggests that the interest rates in the country have been kept low. Even with the new mortgage rules in Canada, mortgage rates are being reported to hit record lows. The Canadian economists like to call this the “lower for longer” theory. They believe that the lower interest rates will help the Canadian mortgage and housing industry to grow once again. This claim has come even after the economic down turn that the country went through recently.

According to the Canadian mortgage rules, the government plans to be stricter and more comprehensive in their evaluations. They will judge the credit histories of potential home buyers more critically than before. This is an attempt by the policy makers to ensure that people do not end up taking mortgages that are not affordable. This way they will protect both the lenders and the borrowers. But the biggest advantage of these policies would be that the Canadian Mortgage and Housing Corporation would be provided more security against defaults. As the CMHC is the prime insurer of the mortgages, they have to be provided this safety measure. This is because this organization is part of the government itself and in a way the government is protecting themselves.

 

 



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