Canada’s Mortgage Monster?

Leo Kolivakis's picture

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Double down's picture

Good Article Leo, thanks

longorshort's picture

Another question on canada.  What % does canadian mortgage insurance cover on losses.  From what percent of loss to what on the average contract?  Also you think banks are immune look at what PMI did renogotiating payouts after the fact.  Its gonna be a real soap opera.

CapitalHole's picture

Canadian mortgage insurance covers more or less 100% of the principal in case of default.

CMHC insurance is 100% guaranteed by the government of Canada. Private mortgage insurance is 90% guaranteed by the government of Canada.

In the US, private insurers would have gone bankrupt so the policy holders had to take cents on the dollar like creditors in a reorganization. Fannie and Freddie had the implicit backing of the Treasury.

In Canada, the taxpayer is on the hook for the full losses. The insurance is backed by the full faith and credit of the feds. Unless the government defaults on its obligations, the banks lose almost nothing.

Seer's picture

Also, what percentage of the Canadian market does the real estate sector represent?

Contraction isn't kind to a grow-or-die system...

Seer's picture

Couldn't wait, had to go fetch it...

From reading the financial news you may have been under the strong impression that Canada's GDP is now dominated by the commodities including particularly oil, gas, and various minerals. You may have also heard that manufacturing is no longer such an important component of Canada's economy. (And that therefore we should not worry much about all the manufacturing job losses that we hear about).

The actual figures show that "Finance, insurance and real estate and leasing and management of companies and enterprises" is by far the largest segment of Canada's economy.

Manufacturing, while it may be lower than in years past, is still a very large portion of GDP at 13%. (We understand that manufacturing includes refining industries).

Amazingly enough, mining and oil and gas extraction shows up way down in the eleventh row at only 4.5% of GDP. That seems shocking, the financial press constantly talks about the importance of the commodity sector to Canada's economy. Somehow I think this 4.5% understates the importance of this sector. But according to this GDP data it is extremely far from being the most important sector.

Review the rest of the list and you will at least be more knowledgeable about the actual composition of the Canadian economy and the percent contribution of different segments. See the link to the latest available source data just above to see the raw data and you can calculate the precise percentage figures if desired.


So, what a relief, Canada's GDP ISN'T all about resouces, no, it's about Real Estate and Finance!  That should make Canadians feel so much better, because the gold standard, the US, uses this very same model!

What this should tell folks is that it's very unlikely that increases in resource exports could make up for declines in their dominant sector(s).

As for "production," I recall reading that most (on an export basis - $$) was autos.  Kind of makes Canada look like one big General Motors!

longorshort's picture

Hi, Anyone have some good info on how to short this with something like futures or credit default swaps when its starts cracking?  Everything cant go up.  I have been watching this issue for two years.  Anyone serious out there as well?  That is a huge chunk of mortgate insurance compared to the Canadian GDP.

CapitalHole's picture

Short MIC.TO. It is an excellent proxy for the CMHC.

Sadly there are no traded options so you will need to put up cash margin.

Arch Duke Ferdinand's picture

Ladies and Gentlemen,

North America is facing a major decision in the next few days and weeks.

.....How many Japanese immigrants do we allow into North America should Fukashima be declared a National Disaster?


pirea's picture

Something is very strange.

I built a nice house somewhere in BC and I was the general contractor.

I bid each phase with at least 3 contractors, and I did the finishing by myself.

At the end the the cost of the house was C$512,000, without my contribution.

If I would sell the house tomorrow I will make maybe C$450,000.

The cost of materials and contractors are very high in Canada. We miss the mexicans.

Do you want to say that if the prices of houses are going down. the contractors are going to do the job at half price? I do not think so, they will rather go on welfare.

CapitalHole's picture

If you built it to be exactly what you want, chances are it's worth more to you than everyone else.

falak pema's picture

Its supply and demand. Sit it out for ten years...

pirea's picture

I did not build the house for sale.

I have intention to live longer in this house. I was just doing a price analysis.

falak pema's picture

Fanny insisted to Freddie..."I want to take your pulse". Freddie replied, "Do I look that worn out?" Fanny queried. "When was the last time it pulsed all the way to your toes?"

""I can't remember that far back" said Freddie. "I've been on those blue pills for so long. I don't feel any tingling throbs down in my toes any more". "Hum, we'll have to check your heart" Fanny was adamant. "If you want full pension treatment you have to prove to me you warrant it. Now take your clothes off". "Are you stripping too?" Said Freddie defiantly as he unbuttoned his shirt. "If you want to see the whole product you better be in shape to service it". "Ha" replied Fanny, "You men are all the same. You think we have to prove we are full fledged intelligent, reactive, appreciative females, not just Adam's rib". "Yes" growled Freddie getting hot not just under the collar. "Any dame called Fanny better have her box in good shape before I'll spend a penny of my well earned money to pulse my pension into her!" He dropped his pants to his ankles in a show of now imperial pulsation.

""What a mortgaged monster you are" said Fanny coyly, not repulsed at all.

AN0NYM0US's picture

Garth Turner (the Greatest Fool)

From three years ago

Housing crash could happen here


Will Canada See The Same Kind Of Housing Meltdown As The U.S.?


Devore's picture

It did happen here, you tool, or have you not looked at a Canadian housing chart the last 3 years?

Seer's picture

"Never"... until a black swan comes and shits on your head!

Yeah, everything's hunky-dory in the Great White North:

Canada Government Falls After Vote Of No Confidence Gets Enough Votes To Pass

They KNOW they are fucked.  They will have no idea how to fix it because there IS NO FIX!  Sooner or later you're going to have to swallow...

Seer's picture

No, "can't happen here!"

All those who have died of cancer were "cancer free" at some point.

Sold your real estate yet?  No?  Well, for your sake I hope that you see it as a HOME and not an investment, because when the bottom drops out (If you can't see a forming bubble then how the hell would you be able to see one popping?) you're stuck there.  Just not seeing that someone who can toss around the "never" word is likely a big-time investor who is closely linked into the underpinning such that he/she could have advanced warning of the economic tsunami that's going to hit.

I feel sorry for those who are ignorant of what's coming.  No so much for the idiots...

Just click your heels together and keep that dream going!

DosZap's picture

Yep, I feel for some of the Canucks, but for the smart asses here, not at all.

All I have heard is how they have their shit together, and were a heaping pile.

I posted here 6-8 mos ago that they were headed for a major Crash,JUST like ours in housing.

$500k for a dump, they are human and fell for the Canadian dream, like our buffoons here.

The wailng will start shortly.

Seer's picture

I walked that talk back in July 2010 when my wife sold her house (greater Vancouver area).  Smart woman, that's why I married her (because she's smart).  Whether looking back in the rearview mirror designates that as the peak (which I hit on my US house) I don't know; all I know is that she got out before the crash.

Only those struggling to hook the greater-fool are yapping away about how great the Canadian housing market is.  Sad, really...

AN0NYM0US's picture

seems that in Oz they too have their share of doomsayers - I no little of that market but they appear to want to emulate the US as well with one guy suggesting Gold Coast will decline by 70% - (I don't think his name is Garth Turner though)

Why Australia is Set to Follow US Path of House Price Doom

25 March 2011

Seer's picture

Down under will really go under when China's economy self-destructs, which is only a matter of time (I'd place it in the short-to-mid timeframe).

Rogerwilco's picture

I like Canada. sells me "Outer Limits" DVDs not available here, and when the U.S. finally gets around to annexing that northern hotbed of terrorism, we'll have plenty of pulpwood for cheap toilet paper.

Housing bubble?, of course. Don't worry though, the banks and pols will rig the action so your kids will foot the bill for your mistakes.

PulauHantu29's picture


I was shcoked when I saw the house prices in Calagry, Edmonton, Vancouver and formerly out-of-the-way places like Jasper; 10-15x annual income (historic norms around 2-3x).

 I hate suffering alone. Good to know Canadian Middle Class Sheeple is about to get screwed (without the KY) like we did in the USA.

"Let them eat cake!"

Kayman's picture

Pulau 29

KY ? They gave you KY first ?  How did you rate that ?



AN0NYM0US's picture

Jasper is such a hole - hard to imagine anyone wanting to visit let alone live there

I wonder what the carrying costs are compared to historic norms? funny no one likes to use that stat.


It's interesting that doomsayer cheerleaders seem to be made up of underwater yanks or homeless canucks.  Down in FL the crazy canucks are scooping swampland at an alarming rate paying cold hard cash, I guess it's something about a currency 25% stronger and sales prices 20% lower than two years ago.

Seer's picture

"It's interesting that doomsayer cheerleaders seem to be made up of underwater yanks or homeless canucks."

Well, that's what you want to see...  But, as a "yank" who is NOT underwater because he believed in downsides (call it doomer, I call it understanding that the world does not work on positive feedback loops alone), I was able to get out of TWO properties (one in the US and one in Canada, taking profits on both) before meltdowns occurred and make money off the CAD as it rose (well, as a fiscal conservative that should be "conserved my wealth").  Now have LOTS of land!  Oh, and my US household is pulling in income from Canada (strong CAD = BONUS)!  I write this not to brag (though, after years of being ridiculed it IS nice to feel redemption), but to demonstrate that your perception of "doomers" is fucked up.

Thanks for playing! Oh, yeah, and thanks for sending CAD down to the swamps of Florida!  Warms my heart to know that Canadians may clean out That swamp (fucked up by years of snake oil salesman, developers and the Bush clan)!

CPL's picture

OSFI is the Office of the Superintendent of Financial Institutions to those that aren't in the know of Canadian financial practices. 

They act as the watchdog in an odd way.  All of their funding comes directly from the banks themselves, it always struck me as strange and even a conflict of interest if your funding comes directly from the people you are trying to regulate.

Oh well, doesn't matter, the GoC is going in for a non-confidence vote against the current minority government at 2 o'clock today.


Leo Kolivakis's picture

OSFI's funding comes from Canadian banks? News to me...please provide some links to back up your claim! Last I checked, it's an independent federal gvt regulatory body.

CPL's picture


Here you go.  Looks for this line.


Since OSFI's regulatory activities are funded entirely by assessments and fees collected from regulated financial institutions and pension funds.


Fox owning the hen house.  Plus I've put guys in there for ten years on contract arrangements.  Not anymore though, dumped my company, sick of the taxation nonsense.

Leo Kolivakis's picture

OSFI's funding comes from Canadian banks? News to me...please provide some links to back up your claim! Last I checked, it's an independent fedderal gvt regulatory body.

Seer's picture

Fox, chicken coop...

Arch Duke Ferdinand's picture

Salient facts to consider...

Population of Canada...@ 35 million

...No Armed Forces to speak, (unlike the US's Armed Force's cost of 25% US GDP)

...Hence CMHC's investment of 25% GDP insuring it's citizen's home mortgages.

...Eastern Canada 24 million....manufacturing based economy???

...Four Western Provinces..only 12.5 million...a plethora of natural resources!!!

...Asia's Billions of Citizens considers Canada's Western Provinces as the only safe haven left in the world.

...Canada also provides free Education and Healthcare.

It is so easy to become a skeptic/critique without knowledge of the facts....

and because of the Japanese Tragedy... the US will in short time initiate PROTECTIONIST POLICIES, imo....

Seer's picture

Wishful thinking is, well, wishful thinking...

I used to boast of the same things as you, but I grew up...

Pretty easy to knock down your straw-man.  Who is Canada going to export to, when everyone else's economies are contracting? (key being the US)

Sitting on all those resources means squat if you can't sell them.  Further, and this is the KEY, without growth to hide all the externalized costs (such as "free" education etc.) things start to fall apart.

Go ahead and take a look at Canada's top exports: energy (oil/NG) and autos.  These two items/sectors are in competition: as energy costs go up auto sales go down.

As I've noted many times, when China's economic bubble bursts it'll take out Canada's escape hatch: nothing as severe as likely is going to happen to Australia, which is really strapped onto the China rocket...

Canuckistan Al's picture

ADF: Come on and get real. First off, I suspect you are a Western Real Estate shill of some type constantly pumping the West. I take it you have an wildly over priced house whose price you want to protect?

Secondly, you are classically naive to think that Healthcare and Education are Free here, far, far from it. My 42% marginal income tax rate, tells you that.

Arch Duke Ferdinand's picture

Be logical...Food, water, natural resources, population and climate.

...Australia is surrounded by billions of potential refugees.

...South Africa already has 50 million citizens


...Hawaii is not self sufficient, is tiny and it is a collection of active volcanoes

...Canada has 35 million...Western Canada has only 12.5 at a world map...this is a no brainer folks.

SumSUN's picture

Yes, we have food, land, water, and the same corrupt banks who own it all.

If something goes sour, taxpayers are left high and dry.


Kayman's picture

Hey Archie Duke

While you are defending the indefensible, I got to ask you- how many attempts did it take to get your realtor's license?

Look at the legal titles in Vancouver, then tell me again that foreigners aren't the backbone of Vancouver pricing.

Arch Duke Ferdinand's picture


....the vast majority of canadian critiques posting are either Renters or those who sold and wait for a correction, or Americans who would love to move to Gateway City, Vancouver BC but cannot afford it.

...Vancouver is set to become North America's next Financial, Cultural and Leisure Capital.

...Never rule out Western Canada seceding from Eastern Canada.(Quebec and Ontario are running humungus Provincial Debts where Western Canada is awash in natural resources w/ but only 12.5 million citizens....that is correct....only 12.5 million citizens.

The Asians appreciate Western Canada's potential.

cpaspareil's picture

Quebec and Ontario do run huge deficit and in Quebec, the pain of cutting back is coming (don't know about Ontario).

But regarding natural ressources, Quebec as nothing to be ashame of compare to any other provinces. It might be good for a minority, friends of the policitian, a few corportation and for the market but for the average Joe, it doesn't make him richer. It just make everything he buys more expensive... 


AN0NYM0US's picture

never rule out the US annexing Western Canada or the West being willing partners. Water, Oil, Wheat and Nat Gas (maybe they'll even let Van be a Special Administrative Region - 2025 will be a much different world than today, who knows maybe even the UN will support an invasion of Alberta to help free liberal democrats from their conservative oppressors

Jessica6's picture

Nope. House owned outright and in the top income tax bracket looking forward to getting even more soaked in the comin years (not!).

Nothing steams me more than the idea of having to bailout the reckless credit-addicted idiots I see all over Toronto, some of whom are even my friends.

Also - free education? Really? Post-secondary? That's news to me.

Greaterfool debunks a lot of the myths about 'hot Asian money' and take a look at how well Calgary real estate is doing in spite of a return to $100 oil.

As for wanting to move there? I've lived in Vancouver, I was even born there. There is nothing on this planet that could make me consider living there again. A God-awful climate, cruddy beaches, and still more meth and crackheads per square block than anywhere else in the country.

Arch Duke Ferdinand's picture

I stand corrected....reduced Education costs.

""Greaterfool debunks a lot of the myths about 'hot Asian money' and take a look at how well Calgary real estate is doing in spite of a return to $100 oil.

A God-awful climate, cruddy beaches, and still more meth and crackheads per square block than anywhere else in the country.""

......So move Mr Sour Grapes...wait for US Protectionism to take hold..... and the millions emigrating here will gladly bask in the God awful climate, cruddy beaches amongst meth and crackheads.


AN0NYM0US's picture

Turner certainly gave his blog an appropriate name.

Arch Duke Ferdinand's picture

jmo, If Fukashima's Radiation activity expands, it not only threatens Japan but also Mainland China, Koreas and Asia.

.....Can you say Billions and Billions of citizens affected.

To escape, will the Asians escape to Europe? or Arab Countries?

Perhaps to Africa or South America.

However, North America seems most logical and Canada's Four Western Provinces seem the most logical...

freedmon's picture

I don't think it's a bad thing that the CHMC's board has neither economists nor financial services professionals on it. Ben Bernanke and Lloyd Blankfein? Then we'd really be in the shit.

Seer's picture

While this quote was directed at the US, it applies to all other governments:

"The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money." - Alexis de Tocqueville

And that's what the CHMC with it's stacked board of pro-development/real estate people have done.  This is a prefect example of how Canadians manage to pretend that they're NOT as fucked up as the Americans; yet, they, the Canadians, want to be like the Americans (who are caught up in their own deceptions)!  Self-deception doesn't turn out well...

billwilson's picture

The Conservatives brought in American ideology to the Canadian marketplace and we will pay for it in the end. We used to have sersible mortgage policies until Harper and the boys came around. Hopefully in a couple of months we will be done with the Republican "no regulation" wanna bees.

Leo Kolivakis's picture

Why do we have to politicize everything? Smartest move the Conservatives did was present a budget they knew wouldn't get approved and launch us back into federal elections. This is their (small) window of opportunity to gain a majority government. It's now or never...and they know it.

Jessica6's picture

This budget failure was as predictable as the sun rising. Opposing candidates were already hiring and putting up posters in vacant store fronts. A month or two earlier there'd been an even quieter signal when hiring plans underway at some Federal ministries suddenly got the axe.

Having said that the worst case scenario is he gets a majority. Rumor has it their own internal polling isn't nearly as positive for them as the public ones are.