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Rise In Canadian Housing Starts

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Canadian Housing Starts have risen for the month of May according to the Canadian Mortgage and Housing Corporation (CMHC). The seasonally adjusted figure has come just come in at 198.3k compared to 194.8k in April, consensus expectations were for a fall in this metric to 185.0k.

The Canadian economy, which is by all accounts well into recovery mode, is still facing the real risk of overheating in the housing market. The Federal Government, through the CMHC, has just last week taken steps to make it more difficult for potential buyers to overburden themselves with mortgage debt. It is a legal requirement in Canada to take out mortgage insurance for any residential backed property loan that doesn’t meet the 20% deposit requirement. The latest move means that the CMHC will no longer provide mortgage insurance for new condominium constructions, there will also be new rules introduced that will tighten up on maximum purchase price, length of loan as well as placing a cap on the permissible debt service ratio.

In the absence of monetary tightening by the Bank of Canada, this macroprudential policy move is seen as offering some potential to dampen the run away house price growth situation in Canada. It has to be noted however that CMHC is not the only provider, there are privately owned mortgage insurance companies that can fill the gap although by and large these lack the scale to overly influence the market and they are also prone to following rather than opposing CMHC actions.

The International Monetary Fund (IMF) last month advised the Canadian authorities to consider shutting down the state owned CMHC altogether. The logic being that central government, and therefore the tax payers, are needlessly holding risk exposure to the Canadian housing market which could create a considerable burden in the event of a general house price collapse, an event that is unlikely but becoming increasingly probable as house prices continue to spiral.

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