Straight talk from a politician is rare and yet when we hear it we still look for the underlying message.  We are conditioned to look for what wasn’t said.  I have a great deal of respect for Minister Flaherty, and his willingness to speak in clear terms.  That’s not easy for a politician to do because it opens them up to criticism and it gives them little wiggle room if they want to back track.  You may not agree with what Flaherty has to say but at least you know where he stands on issues.  Minister Flaherty gave a speech in Stittsville, Ontario last week, and it was another example of straight talk.

His speech was about the state of the Ontario economy, and his thoughts regarding the pressure being put on the federal government to further tighten mortgage rules.  There was no ambiguity in his speech, here’s what you may have missed in his speech:

“I find it a bit odd that some of the bank executives are taking the position that the minister of finance or the federal government somehow should tell them how to run their business.  We have bank executives in Canada going and saying ‘really, the rules on insured mortgages should be tightened up.’  They must forget that they are actually the ones that issue mortgages.  It’s their market.  It’s not my market.  They decide what they want to charge in interest rates.  They’re the ones that make the profits out of this business, so I find it a bit much when some of the bank executives turn to the government and say ‘you ought to change the rules and make it tighter.’  It’s very interesting commentary from them.”

Try as I might but I can’t find a hidden message in the statement above.  No Clinton like speak here.  The message is clear and what else is clear is that some bank executives got a verbal public spanking.  For months now the pressure has been relentless that the government must act and tighten mortgage rules.  The fact that some of those that are sounding alarm bells have introduced or decided to follow the irrational interest rate pricing game is “special”.  Let’s see, “we’re concerned about consumer debt so we’ve decided to lower rates so consumers can take on more debt, and add gasoline to an already hot housing market.”  Alex, I’ll take double speak for $200 please.

I understand and agree that the concern about consumer debt is real, and it needs to be addressed.  The Bank of Canada, and the Ministry of Finance, are walking a tightrope.  Cooling down the housing market, while not negatively impacting the overall economy, is not an easy task.  Recently CAAMP provided a report to the Ministry of Finance about the impact of the housing industry has on employment in Canada.  The report was written by Will Dunning, CAAMP’s Chief Economist.  I encourage you all to read the report, and to receive a copy please visit CAAMP’s website at CAAMP.org

Here’s a few highlights from the executive summary:

• The housing and mortgage industry has been particularly important to job creation these past 5 years.  From 2006 to 2011, it’s estimated that 18% of all job creation occurred as a direct and indirect result of growth in the housing and mortgage sector.
• The biggest threat to the health of the Canadian housing and mortgage industry is a recession that results in job losses.  The best way to support the housing and mortgage industry and to sustain its positive impact is to pursue policies that continue to create jobs.  At the same time it is important that qualified buyers have choice when seeking mortgages to finance or re-finance their home.

As an industry we have a responsibility to the government to provide facts, which ultimately can assist the government with a safety net.  Is our message getting through?  All I know is that the government decided to not change the mortgage rules at this time.  I would like to believe that our efforts to date have had a positive impact.  One thing I am certain of is that we have to stay the course, and not talk through both sides of our mouth.

Until next time,

Cheers.

Media coverage of “consumer debt” and “inflated home values” in Canada has been relentless.   The national newspapers have used up plenty of ink to cover these stories.  There’s been no shortage of so called experts willing to quote on these issue.  Opinions range from mild concern to abject hypocrisy.   Given that the temperature gauge has risen significantly over these issues, I have to assume that the federal government will be forced to respond.  This is not a story with  24 hour life cycle, and the government will want political shelter if the so called experts are right.

 I have a great deal of empathy for the good folks at CMHC.  For some time now they’ve been in cross-hairs.  The press, economists and some within the financial sector have taken liberties as it relates to CMHC’s credibility.  Does anyone really believe that CMHC does not know what it is doing?  That they do not have the required expertise to manage their business?   That they would act recklessly or in some way irresponsibly?  The answer clearly is no.  Yet, there’s been coverage recently about CMHC’S solvency.  Their financial statements clearly show that they have enough capital on hand to withstand market variances.  They continually run stress tests to ensure their financial viability, which equates to being responsible to the tax payer.  Their most recent stress test indicated that insolvency was not an issue, with the following caveat.  Our economy would have to go into  multi-year recessionary period, and unemployment would have to reach 13%.  Who among the so called experts are willing to put their reputations on the line by guaranteeing that dooms day scenario?  I suspect not many.  As for 13% unemployment, could it happen?  Certainly, it reached 13.2% in December of 1982.  Anything can happen but the question is what’s the probability?   That’s what CMHC manages day in and day out, and from where I sit they’re pretty damn effective.

 As for the other favorite target, the Ministry of Finance, I find it fascinating that some within the financial sector are publicly  stating that the government must act now and tighten mortgage rules.  They suggest that we’ve reached a critical stage, consumer debt it too high, home values are inflated.  Really? If that’s the case why don’t they do the responsible thing and act independently.  They could change their credit policies tomorrow.  If they believe that the government should change the mortgage rules  to reflect a maximum 25 year amortization, a minimum down-payment of 10%, and that borrowers should be qualified at the 5 year posted rate, then they should be prepared to lead by example.  If they’re not prepared to lead, and do it on their own, we have to assume that present day circumstances poses no risk to their share holders.  For if it did, they would do the right thing.  Just like the folks at CMHC have been doing.

 Until next time.

 Cheers.

There’s been no shortage of change, news or predictions about the economy, and specifically about the mortgage industry since the beginning of the year.  It’s hard to keep up and to determine what’s vogue.  By all appearances one issue that won’t go away is the call for more changes to the mortgage rules.  That’s the one constant drumbeat in this symphony of industry news.  But if you listen closely you’ll hear something that we’ve rarely ever heard before, banks talking smack and taking dead aim at each other.

Historically speaking the banks have always adhered to their own version of “Marquess of Queensberry” rules.  They battle for profitability and market share supremacy within a pragmatic framework.  The oligopoly has a good thing going and it’s their best interest to play nice.  That’s always been the case, until now.  I heard an ad on the radio today that made me take notice.  The largest bank in Canada is advertising that consumers should be careful of another banks offering.  They didn’t mention the other bank by name but they did refer to a 2.99%, five year mortgage.  Gee, I wonder who that might be.  The consumer is being warned to read the fine print, and not to make a decision in haste when we, Canada’s largest bank, can offer the same rate with all the privileges, minus 12 months of term.  What we have to offer is better than what the guy across street is offering.  There’s no vagueness or ambiguity in the messaging.  Could this form of advertising change the way banks operate and compete in the market place?  If it was to happen it would take some getting used too but in some ways it be refreshing, and I suspect a tad entertaining.  But alas, I believe this is a one off situation.  I think this is a case where the big boy sent a message to one his competitors.  The message? Play nice and let’s all get ours.  If you don’t, we’ll respond in kind.

One thing I learned over the years is that you don’t go around poking a bear in the eyes.  It doesn’t matter if you have the will or disposition to battle.  When the odds are stacked in the other sides favour, you act wisely.  It’s been my experience that the bear will eventually regain full vision, and respond by kicking you in a region of your body which is due south of your eyes.

Until next time.

Cheers.

This is going to be pretty busy year for me as relates to travel.  My work requires me to travel a fair bit as it is, but when I add my responsibilities as CAAMP Chair, well, Toronto’s Pearson International Airport will become a second home to me.  I’m not complaining in the least bit.  I signed up for this gig; therefore, I have to accept the responsibilities.  It would be tempting to only visit cities where I have a personal interest (i.e. Merix volumes) but if that was my motivation I should have never campaigned and ran for Chair.  The Chair has to separate his/her personal interests from that of the associations, and so it begins for me.

 The CAAMP road show begins today with the first symposium of the year in Kelowna, B.C.  It will eventually move across the country and I’m looking forward to talking to members in all regions of the country. (more…)

I always find it fascinating that highly trained people can look at the same raw data and come up with different interpretations.  Some time ago CAAMP’s Chief Economists, Will Dunning, characterized economists this way to me, “if the economist is an optimists his forecasts will reflect that.  Conversely, if the economist is a pessimist his finding will have a glass is half empty slant”.   Your DNA, your personality, and getting up on the wrong side of the bed will influence the finding of those who join the dots and make predictions.  Based on headlines recently many economic prognosticators should be going to bed earlier to avoid crankiness. (more…)