The federal finance minister seems convinced that Ottawa’s efforts to cool the housing market are working. In a letter to the House of Commons finance committee Bill Morneau says, “A decline in the share of new insured loans issued to highly indebted borrowers suggests that the quality of credit is improving in the high-ratio mortgage market.”

This does not appear to take into account the abundance of homes priced at more than $1 million in the biggest and busiest markets of Toronto and Vancouver. These homes are not eligible for government sponsored, high-ratio mortgage insurance under federal policy changes put in place back in October.

The latest numbers out of the GTA may force the minister to take another look at his comments. The figures show the average price for an existing detached home dropped below the million-dollar threshold in the first two weeks of this month. That will make a lot more high-ratio mortgages eligible for CMHC insurance once again.

Economists and other market watchers are not rushing to call the slide in Toronto prices a “correction”. Many believe it is likely do to a change in the composition of the market; with more, lower priced, homes finally going up for sale.

It may be worth noting that only three of the four major policy changes announced by the federal government back in October have actually been implemented nearly a year later. More stringent stress tests for mortgage qualification, restriction of mortgage insurance to homes costing less than $1 million, new reporting requirements for the principal residence capital gains exemption – all aimed directly at consumers – are firmly in place. A plan to get lenders, in particular the big banks, to share in the risk of insuring against mortgage default still languishes in the consultation stage.

Aug 28, 2017
Thank you First National Financial for your insight.