Finance Minister Jim Flaherty said he regrets that Canada’s housing agency has grown as large as it has and promised to take additional measures if a reduction in the amount of government insurance on mortgages is needed.
The value of home loans insured by Canada Mortgage & Housing Corp., which is backed by the federal government, has almost doubled since the end of 2006, saddling taxpayers with a growing liability as policy makers warn that gains in house prices may be unsustainable.
“Regrettably, CMHC became something rather more grand I think than it was intended to be,” Flaherty told reporters today in Markham, Ontario, near Toronto. “We’ll see over time what that role should be.”
CMHC, set up in 1946 to address a post-war housing shortage, had assets of C$289 billion ($271 billion) as of Sept. 30, which would make it the nation’s sixth-largest bank.
The Finance Department and financial regulators have taken steps over the past four years to curb mortgage lending. Most recently, CMHC announced Nov. 29 that the agency would be paying a “risk fee” of 3.25 percent to the federal government on the insurance it writes, starting Jan. 1.
While measures introduced last year by regulators and Flaherty slowed the market temporarily, home sales and values rebounded as the year progressed. The average sales price of a home sold in the country this year is up 4.6 percent, according to Nov. 15 Canadian Real Estate Association data.
There are some signs the market is cooling. Existing home sales fell 3.2 percent in October from the previous month, the biggest drop in more than a year, as the prospect of lower-for-longer interest rates eases pressure on buyers.
“We don’t expect the minister to act,” Robert Hogue, a senior economist at Royal Bank of Canada, said in a telephone interview. “As far as wanting to cool the market, we don’t think it will be necessary.”
Flaherty said today the government has also capped the amount of insurance the agency can issue, and imposed a risk-fee on CMHC that is higher than the one it levies on private mortgage insurers.
The measures have begun to work, housing agency data show. CMHC had C$560 billion in outstanding mortgage insurance at the end of September, down 6.3 percent from the end of last year, it said in a Nov. 29 report. The government imposes a C$600 billion insurance cap on the agency.
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