MLN NewsStream

Our leaders have been swiping the national credit card like it's Black Friday, and mortgagors are paying the price for their extravagant spending.

Someone finally quantified that price last week when a Scotiabank report concluded:

"We estimate that government consumption and pandemic transfers to households account for about 200 basis points of the 475 basis points increase in the Bank of Canada’s policy rate."

Let's say Scotia's estimate is even half right. That's a whopping $17,000 extra that families are shelling out on a 5-year term (based on average mortgage amounts, according to TransUnion).

As much as some of that spending was justified to save families and jobs, much of it was our federal and provincial leaders acting like teenagers with a new VISA. The spending taps remain wide open, with federal program spending estimated at ~16% of GDP, well above the ~13% long-term average. How much the Liberals rein in spending will partly influence how far rates fall in the next rate-cut cycle.

But what many don't realize is, the riskiest spending is out of our control.

Bob Rennie is unquestionably one of the most successful real estate marketers in Canadian history. In his early days as a realtor, he was famous for selling a property a day. His development promotion expertise later earned him the nickname the condo king.

MLN soaked up Bob's insights on various real estate issues weighing on this country. Among other things, he shared:

• Why home price declines are skewed
• The biggest reason for housing unaffordability
• The financing requirement that helped build Rennie's business
• Rennie's "secret" to real estate marketing
• How the foreign buyers' tax impacted the market
• How the foreign buyers' tax elevated racism
• Why Canadians need two properties to get ahead
• How soaring rates in 1981 crushed him for years
• His government-sponsored financing strategy.

Without further ado, here's our chat...

When Smith Financial bought out Home Capital, it necessitated that Home lose its precious NHA mortgage-backed securities (MBS) and Canada Mortgage Bond (CMB) allocations—i.e., the ability to fund its mortgages through MBS and CMBs.

That was a crushing blow to Home's prime mortgage competitiveness. After all, the spread on CMB/MBS funding is just 25-50 bps more than the Government's risk-free borrowing rate. Lenders must add miscellaneous costs (guarantee fees, insurance premiums, etc.), but CMBs/MBS are still often the cheapest way to fund a mortgage.

Knowing this crucial lifeline would end, Home Capital chose to cut off its low-margin prime mortgage business like a gangrene-infected leg.

The loss of Home Trust as a prime mortgage competitor, in turn, led some to ask why this had to happen.

We turned to CMHC, the Yoda of securitization, for an explanation. It said...

Credit unions are an afterthought for many Canadians. Yet, CUs are critical to the mortgage ecosystem because they compete in ways that banks don't.

In the once stable world of mortgage market share, the Big 6 banks have slipped on a banana peel. Their market share of new mortgage originations sank 590 bps to 53.8% in Q1 2023, according to new CMHC data. That starkly contrasts with their previous 62.0%, from just two years back.