Housing market warning
'Could be softening': Royal hints at peak as CMHC OKs 30-year mortgages
Garry Marr, Financial PostPublished: Tuesday, March 07, 2006

Royal Bank of Canada warned yesterday that the country's robust housing market may be slowing, adding its voice to a chorus of commentators saying the market has peaked.
The bank reported in its annual home ownership survey that buying intentions are at their lowest levels since 2000, a sign the "market could be softening." A poll conducted for the bank by Ipsos-Reid found only 10% of respondents say they are very likely to buy a home in the next two years -- down from 13% a year earlier.
"This year's results are a definite change from what we witnessed over the last five years," said Catherine Adams, Royal Bank's vice-president of home equity financing. "The intention to buy is still evident, but the intensity to do so is nowhere near as great."
A Statistics Canada report yesterday saw a sharp drop in construction intentions. The federal agency reported builders applied for $3.5-billion worth of residential permits in January, a 21.4% drop from a month earlier. Economists noted single-family home construction intentions continued to rise in January.
Most economists are predicting a pullback in new home construction and existing home sales in 2006, after new home starts set a record last year while existing home sales reached their second-highest level in 17 years.
In the face of these predictions of a slowdown in housing, Canada Mortgage and Housing Corp. -- the Crown corporation that monitors housing and insures Canadian mortgages -- provided some new fuel to the market.
In an announcement issued on a Saturday, CMHC said last week it will allow Canadians to amortize their mortgages over 30 years rather than the traditional 25 years. The effect will be lower monthly payments, making it easier for first-time homebuyers to get into the real-estate market.
It's unclear whether CMHC made the move to provide a boost to the market or for competitive reasons as it battles with privately held Genworth Financial Mortgage Insurance Company Canada (formerly known as GE Capital Mortgage Insurance) for control of the insurance market.
"I think they are testing the waters," said Benjamin Tal, senior economist with CIBC, about the new 30-year amortization.
Mr. Tal said the change will help offset expected increases in mortgage rates, based on monthly payments. "The fear is more low-quality mortgages will come into the market," he said, adding the CMHC policy is indicative of a market on its last legs. "You want to get the last wave of homebuyers before this boom is over."
Mr. Tal said the move by Canadian financial institutions into sub-prime mortgages is another sign the market is near its peak.
Toronto-Dominion Bank and Bank of Nova Scotia have both made acquisitions to get into the sub- or near-prime mortgage and auto-lending market.
"The activity in the sub prime is an example of the market being at or near the peak. It always happens near the end of the real estate market," said Mr. Tal.
In the real estate world, it's full steam ahead with few worries about a pullback, let alone a crash. "We've had a great two months already this year," said Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada.