Real Estate NewsCMHC Programs Support Strong Markets
Over 1.3 million Canadians have dipped into their RRSPs to purchase homes through the federal Home Buyers" Plan (HBP) since its creation in 1992. Usually, sidetracking savings targeted for retirement is discouraged, but the more than C$13 billion in RRSP funds involved bought dream homes and fueled the real estate industry without jeopardizing individual retirement plans -- thanks to the federal government.
Canadians may temporarily withdraw up to C$20,000 from their Registered Retirement Savings Plans (RRSPs) toward the purchase of a home. To avoid taxes and preserve the RRSP, the funds must be replaced within 15 years. (For more on HBP, see PJ"s "Registered Retirement Saving Plans & Canadian Home Buying Through HBP," February 24, 2004.)
The federal government continues to develop and promote programs like HBP that are designed to offset financial barriers, facilitate home ownership and encourage real estate investment. The national housing agency, Canada Mortgage and Housing Corporation (CMHC), is committed to providing Canadians with greater access to affordable housing finance while working with the mortgage industry to expand business opportunities.
CMHC attempts to counteract external pressures on interest rates through programs like the National Housing Act (NHA) Mortgage-Backed Securities (MBS) Program, which pioneered the development and use of mortgage-backed securities in Canada in 1987. NHA Mortgage-Backed Securities, fully guaranteed by CMHC on behalf of the Government of Canada, allow investors to make secure investments in Canadian residential mortgages. This, in turn, helps to increase the supply of low-cost funds available for mortgage lending and, therefore, for home buyers and rental property buyers. (For more on MBS, see PJ"s "Canadian Mortgage Market to Top C$500 Billion, Favoring Mortgage-backed Securities," February 4, 2003.)
"National Housing Act Mortgage-Backed Securities (NHA MBS) and Canada Mortgage Bonds (CMB) programs continued to perform well with $8.7 billion of CMB and $7.3 billion of NHA MBS securities issued to the market in the first half of 2004 surpassing the records set in the same time period last year," reports Richard Liu of CMHC"s Securitization Operations and Monitoring.
As Canada"s only provider of mortgage loan insurance for multiple-unit residential buildings, CMHC is mandated to support this vital real estate sector. Rental mortgage loan insurance is available for many types of properties such as apartment buildings, retirement homes, nursing homes, mixed use properties (apartments with commercial space) and other forms of housing partnerships and co-ownership such as co-op and co-housing. Mortgage loan insurance for refinancing homeowner and rental property mortgages has resulted in an increase in the volume of second mortgages, particularly with regard to rental properties, that could potentially be securitized.
The NHA MBS Program was recently expanded to include insured second mortgages for both homeowner and rental properties.
"This enhancement will provide Approved MBS Issuers with an additional funding source for second mortgages," said Karen Kinsley, President of CMHC, later adding that property owners will also have access to more affordable mortgage financing for activities such as repair and renovation. "This helps increase the amount of private capital available to purchase homes and rental accommodation."
Borrowers now have the choice of fixed or variable interest rates for insured loans on rental properties and access to lower cost alternatives. When rental loans are CMHC-insured, borrowers can finance up to 85 per cent of the value of the property. As a result, borrowers need less equity when purchasing a rental property and can achieve a greater return on investment. By reducing the risk of loan default to lenders, CMHC-insured rental mortgages help borrowers benefit from lower interest rates over the life of the loan. As well, the new Rental Refinance product provides rental property owners with the opportunity to access low-cost funds so they can, among other things, invest in their properties or build and acquire more rental housing.
"A combination of continued economic growth and job creation, positive demographic factors, and low mortgage rates will sustain demand for homeownership in both new and resale housing markets leading to a 6-8 per cent annual rate of growth in residential mortgage credit next year following a robust 8-10 per cent rate of growth in 2004," said CMHC"s Ali Manouchehri, a senior economist at its Market Analysis Centre. "Residential mortgage credit will surpass $600 billion in 2005."
As long as the housing market remains strong and interest rate increases have minimal effect, the government looks good. We can only wonder whether government strategies are resilient enough to promote growth in less prosperous times.