The heyday of free credit is most definitely over. Over at CanadianMortgageTrends is an article proclaiming that CMHC mortgage volumes are down 37% this quarter.
The cause? A quadruple punch from a slowing market, new regulations that stripped out some marginal borrowers, limits on refinancing, and the cessation of bulk portfolio insurance.
The bulk insurance story is particularly promising, since banks can no longer pass their risk on conventional mortgages to the taxpayer. Now that CMHC is bumping against their $600B limit, they have essentially completely shut down the program. CanadianMortgageTrends reports that the big banks are now operating under a strict $1B/year and small lenders are seeing an 80% reduction in the bulk insurance they have access to. Now that the political climate has shifted from party to hangover, it is highly unlikely that CMHC's cap will be raised, and they are preparing to live under the new ceiling for the long term.
The bulk insurance racket looked good for CMHC's overall portfolio (average equity 45%), but allowed the lenders to pass off all the risk for minimal cost. Mortgage with 25% equity but a stretched owner with shaky employment? Pass it off to the taxpayer in a big bundle. The "private" insurers only do limited bulk insurance, so this option is now essentially off the table in Canada.
We've seen the effects of these rules here in Victoria with sales down, MOI up, and many deals falling through. The lower end seems to be hit hardest so far, with sale prices still exploring new lows relative to assessment.