There’s a rift about what to do with the Canadian housing market. The reality is that it has become, quite simply, too big to fail. Canadians have gone all in on housing, after policy makers decided to suppress the market from clearing during the financial crisis. This has resulted in real home prices (inflation adjusted) to grow by 88% since 2005. That’s nearly triple the house price growth of any other G7 country.

As a result, the FIRE sector (Finance, insurance and Real Estate) makes up nearly 25% of GDP. While household debt to GDP has ballooned to just over 100% of GDP. Now that a crisis has struck in the form of a global pandemic, it begs the question, what should policy makers do?

With a 69% home ownership rate, the majority of Canadians wealth now hangs in the balance.

Cue, Evan Siddall, the head of Canadas mortgage and housing corporation. Concerned over the elevated debt levels, and unsustainable price growth, Siddall believes house prices could fall anywhere between 9-18% based on recent forecasts. As a result, he decided to tighten lending standards to protect our tax payer backed mortgage insurance provider. His hope was that the two private mortgage insurers in Canada would follow his lead. How wrong he was.

Instead, lenders continue to pump out new loans, simply directing the new business to the private insurers- Canada Guarantee and Genworth. Both are happy to grow their share of the pie, and why not? Private insurers in Canada only take 10% of the risk as the Canadian Government covers 90% of any loss.

The moral hazard and blind disregard for risk has Siddall concerned. In his recent letter to Canadian banks, Siddall noted, “We are concerned that our competitors may be seeking a greater share of lenders less risky business in return for absorbing business that CMHC has abided in order to preserve balance in their mortgage book. However we have long managed risk imbalances in rural and remote markets for which we have not burdened you. More importantly we object to a competitor asking you (and us) to subsidize their economically counterproductive activity. Private Mortgage Insurers are responsible for the decision to take on riskier loans themselves.

In conclusion I’m asking for two things, first we would hope you would reconsider highly leveraged household lending. Please put our countries long-term outlook ahead of short term profitability. Second please don’t aggravate the impact by undermining CMHC’s market presence unnecessarily.

Our ability to respond effectively in a crisis will be weakened if our marketshare share deteriorated significantly further. We are particularly concerned that lenders not benefit private mortgage insurance when liquidity is prevalent only to rush to CMHC for support when it is not. Our marketshare increased earlier this year, as it tends to do in a crisis. If you want us in war time please support us in peacetime.

Unsurprisingly, the letter was not well received. Deemed “a bit extreme and alarmist” by some bank execs. But then again, what else would you expect when the country is chips all in on one hand.

“Industry leaders confiding in me today were united on two fronts: that Mr. Siddall has lost their trust with such reckless assertions, and by virtue of that, has now officially overstayed his welcome in the Canadian mortgage market, added Rob McLister of RateSpy.

Three Things I’m Watching:

1. Canadian home prices increased a whopping 88.0% from 2005 to 2020.

2. Canada’s household debt to GDP sits at the top of the charts as per the OECD.

3. Trudeau brings in former Bank of Canada & Bank of England governor Mark Carney to help with recovery plan.


  1. The private insurers are on the hook unless they are bankrupt or insolvent.

    “90% Guarantee” means the guarantee of the Canadian government of the benefits payable under eligible mortgage insurance policies issued by the Company, less 10% of the original principal amount of each insured loan, in the event that Genworth Mortgage Insurance Canada fails to make claim payments with respect to that loan due to its bankruptcy or insolvency. Currently the 90% Guarantee is provided under the terms of PRMHIA (as defined below).


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