While most people place the blame, or credit, for CMHC changes to lending practices scheduled for April 19 with the Finance Dept., it was really the banks who lobbied for tighter rules. Making buyers qualify at the posted five year mortgage rate seemed straight forward (buyers were already being qualified at the three year rate previously), the kicker was that buyers who opted for a five year or longer term could then be qualified at the contract rate – usually a lower discounted rate. The net effect is that buyers will be channelled into a five year mortgage.
Then the banks all announced an increase of 60 Basis Points in their five year rates – at about the same time and with about the same increase – sounds like a job for the Competition Bureau. But wait, their hands are full dealing with the real estate industry and its association – CREA.
At the same time the CMHC rules for investors – remember the first press release which called these people speculators – requires 20% down and provides for less credit assigned to rental income offsets. Again this will remove a significant number of smaller Canadian property investors.
So why do banks want to take the ‘steam’ out of the real estate market? Remember that their growth business going forward is ‘wealth management’ and brokerages. That is selling stocks, bonds, and mutual funds to average Canadians for their retirement. But past portfolio performance has more and more average Canadians looking at alternative investments such as real estate. So how to compete? Just kill the real estate market and drive everyone back to stocks and mutual funds.
The criticism levelled against people such as me who comment on the real estate market is that we have a vested interest and we could never be unbiased in our analysis and forecasting of real estate markets. But what about all these bank economists and banking personnel? They also have a vested interest in getting the average Canadian out of real estate and back into their products. Sound a little farfetched? While the rest of the economy struggles, banks are making record profits. And yes they will succeed in putting a damper on this real estate market. Let’s hope people are smart enough to realize that long term, real estate is a better investment with more personal control of one’s affairs.