An underperforming mortgage bond-market in Canada
To avoid a situation like many other countries where the housing prices crashed in no time, the Finance Minister in Canada brought in a few changes which have greater impacts on the housing market. The amortization period has been reduced and the down payment has been increased. These have multiple effects on the buyers. Many who have been saving to buy a house during this period have put their plans on hold for the market to get stabilized.
Jim Flaherty wanted the nation to ignore a situation when USA’s crashing housing market slashed the world’s economy.
The impact is multifarious, leaving the buyers, sellers and lenders at a compromising situation. They are all signalling that the attempt of the Finance Minister to cool off the housing market will work as a slowdown in the transaction of mortgage bonds.
A report says, Canada Mortgage and Housing Corp. (CMHC) which is a government agency responsible for insuring mortgages has sold $2.25 billion of 10 year bonds to get 56 basis points which was 61 basis points in May this year.
A portfolio manager interprets the situation as less demand and less supply of mortgages in future.
According to Bank of America Merrill Lynch, the Canadian bonds are down by 0.4% in compared to that of 0.3% of American securities.
The second largest selling body of bonds after CMHC has also reported a total sell of $24.7 billion which is lesser than a sale of $27 billion during the same period of last year.
Hosen Marjee, Senior Managing Director at Manulife Asset management in Toronto says, “There has been some bad press regarding the housing market, the market exposures, over extension of consumers, and potential for default.”
However, the number of Canadians paying their mortgages after the scheduled date dropped down to 0.34% in May whereas it was 0.38% in the beginning of the current year.
The percentage of debts written off has also reduced quite considerably as per a data.
The tighter mortgage rules have been implement for a little more than a month now, people took some time to understand the changes and then to react. Now that many of them have understood the same the reactions are visible. The slowing down of mortgage bond sales is the first and fast reaction of the implementation.