Photo: Malcolm Murdoch/Flickr
By not providing detailed enough information and statistics on the Canadian housing market, the federal government is putting the country’s economy at risk, says a new report from CIBC.
The report, entitled “Flying Blind,” was authored by CIBC deputy chief economist Benjamin Tal who poses a series of rhetorical questions to highlight all that we don’t know about the market.
“What was the dollar value of new mortgages originated in Canada in the last quarter? What is the credit score distribution of mortgage credit in Canada? What is the share of non-conforming loans in the Canadian landscape? What is the delinquency rate of those non-conforming loans? What is the trend in re-financing and pre-payments? What is the net equity position of new and existing mortgages? What is the flow of rental activity in the country? What is the share of foreign investors in the condominium market? What is the average down payment?”
The gap between the importance of the real estate market to the economy and the lack of publicly available information on it, Tal says, is “mind-boggling.”
He says there is a consensus that the housing market is “overshooting,” but the real test will come when interest rates begin to rise.
“…how can you determine the level of rate sensitivity if you do not have information on the distribution of mortgages by actual mortgage rates, the level of down-payment and the distribution of borrowers by their debt service ratio?,” Tal asks.
He says banks and other lenders have access to much more data than the average consumer, and as a result, those with less information form their often bearish opinion based on anecdotal evidence and/or questionable macro-based indicators such as the debt-to-income ratio and the price-to-rent ratio.
“This situation is unhealthy,” Tal writes. “Due to competitive reasons lenders cannot reveal all the information they sit on, while other players are forced to use their limited information to make decisions.”
So what’s the solution?
Tal says it’s time for the Canadian Mortgage and Housing Corporation to release more timely and comprehensive information.
“…Canada’s credit bureaus must find a way to incorporate crucial mortgage information into their reporting; the Superintendent of Financial Institutions (OSFI) through coordination with the country’s largest financial institutions can provide more information regarding credit and default trajectories — ditto for the Canadian Bankers’ Association.”
BuzzBuzzHome made a similar call to action back in September when we put forward a petition, addressed to then-finance minister Jim Flaherty, calling for more transparency in the housing market.