Finance Committee on Feb. 13th, 2017

[Steven Mennill]

Yes, that would be 15% to 20% of our overall volumes of mortgage insurance being processed or approved in that period of time. The majority of those borrowers are first-time buyers.

[Evan Siddall]

It's in the neighbourhood of two-thirds or so.

[The Chair, Liberal, Wayne Easter]

Okay, thank you.

Turning to Mr. Fergus, we'll go to five-minute rounds.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you, Mr. Chair.

First, I want to thank you, Mr. Siddall, and your colleagues for being here today. I find your remarks very informative.

In your presentation, you said it was possible to have too much of a good thing. I agree with this philosophy. Sometimes, we must soften our zeal for taking on debt to purchase a home.

You mentioned that your goal wasn't to create a spike in housing prices in the greater Toronto and Vancouver markets, but to avoid negative long-term consequences for the Canadian economy. You're doing this because you really want to focus on Canadians who are vulnerable to external factors in the Canadian economy. These people are heavily in debt.

Mr. Siddall, several witnesses have said that there's no need to panic and that the situation isn't like the one that occurred in the United States in 2007-2008. When we look at the indicators, such as the 90-day arrears, we can see that we're not in a similar situation.

I'll ask you a question to start our discussion.

If the 90-day arrears are not a good indicator of risk for the future, what indicator do you think is useful for predicting the future?

[Evan Siddall]

Let me reinforce two things, if I may, in response to the question.

First of all, the decisions were taken by the Minister of Finance on our advice, so I don't deserve credit for those changes but of course we advised in support of them. The “too much of a good thing” reference was my interpretation.

Arrears are in fact quite low, at about one-third of 1%, and indicators are that they're in fact trending lower, not higher, in our country. There are some delinquency issues that are trending up in a few areas. That's another indicator that we pay attention to, as is, as a result of this research I referred to in response to Mr. Albas, the overall level of indebtedness.

Also, then, I should say that our housing market analysis framework is a model that refers to evidence of problematic conditions and analyzes four factors: overvaluation, overbuilding, house price acceleration, and one more that I've forgotten—

[Michel Tremblay, Senior Vice-President, Policy, Research and Public Affairs, Canada Mortgage and Housing Corporation]

It's overheating.

[Evan Siddall]

Yes, overheating.

That includes several models that sit under it, and I suppose, if I may say so, it stands for the proposition that no one single measure is reliable. We have to look at a compendium of measures in order to understand the collection of what's going on in various marketplaces in Canada, and we do attend to those.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Then no one ever gets credit, Mr. Siddall, for taking steps that eventually avoid a problem in the future because a problem doesn't arise in the future, for which we can be thankful.

Stepping back a bit, if we are trying to make sure that we do not have an overheated, overvalued, or overbuilt.... I'm sorry, but now I forget the fourth factor you raised.

[Evan Siddall]

They are price acceleration, overheating, overvaluation, and overbuilding.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

There you go.

You're seeing the current situation and you're feeling that it.... You gave advice to the Minister of Finance that, based on your analysis, this could be a problem.

[Evan Siddall]

Yes.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

I agree with you, so I'm wondering at what point you will be convinced that we've avoided this problem or this future problem.

[Evan Siddall]

I suppose, as I said to your honourable colleague, that I'll never be satisfied; that's my job. I think you rely on us at CMHC to make sure—in fact, this is in our legislative mandate—that we promote financial stability and access to housing. It's a balancing act.

I don't know whether that will arrive, but what I do know is that with the economic growth we have in this country, increasing immigration, and the possibility of increased foreign investment flows and low interest rates, there is a lot promoting the housing market. Housing is now at an all-time high as a percentage of GDP in our economy, and all of these factors point to potentially too much of a good thing. It's that combination of factors that I would refer to.

[The Chair, Liberal, Wayne Easter]

I'm sorry, gentlemen, but five minutes goes by fast.

Mr. Liepert, you have five minutes.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Mr. Siddall, thank you for coming today.

I must say that I cannot believe that we had about 12 hours of witnesses here—people who are in the field, people who are experiencing this every day—and you come here with a statement that basically says they don't know what they're talking about, and says, “I'm sitting here in Ottawa and I know better than they do.” I don't think I've ever seen a more arrogant presentation in my life.

I think you might want to take a minute and just step back and say that some of these people who are experiencing these issues every day might know something about what's going on here. You say, “it could happen”, “if it happened”, and based on reading a book. I'm appalled.

We have a situation in Alberta where we've gone through two years of job losses that are unprecedented in this country, and foreclosures have barely changed. Based on exactly what has been happening in Alberta for the last two years, how do you justify what you recommended to the minister?

[Evan Siddall]

First of all, I apologize if I come across as arrogant. That's not at all my intention.

We have people working in all provinces of this country, including Alberta, and we listen to our colleagues in all of the entities and to all of the stakeholders who testified to you. Some of them are our clients, in fact. Some of them are our competitors, and we listen quite intently to them.

I misspoke if you thought our conclusions came merely from a book. I was citing that as a particular piece of evidence for being concerned about the future, and I would reiterate that concern.

I must say that the problem that we worry about the most is unemployment. That is absolutely the single creator of somebody losing their home. That's the single risk we face.

Economists talk about negative demand externalities. People in Canada will determinedly pay for their home, so the fact that our arrears rates are very low is actually worrisome, in the sense that someone will save their home by not buying a car, by not buying a fridge, or by economizing on their groceries. That's our experience in Canada. What that does is it reduces consumption. When we reduce consumption, we reduce economic activity. When we reduce economic activity, someone loses their job. That is what we're concerned about.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

We've been told by people who deal with clients on a daily basis that what you have done is the exact reverse. First-time homebuyers who were about to qualify for a mortgage could not qualify under these new rules, so they've taken their dollars and spent them on a vacation or a car. What would be your comment to that?

[Evan Siddall]

I haven't seen that data.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Well, read the testimony, then, that came before us—

[Evan Siddall]

I've seen the testimony.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

—multiple times.

[Evan Siddall]

I can't distinguish between an opinion and facts, so I haven't seen the data.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

You're going by opinion; you're not going by facts. You have no facts to justify what you did. You are going simply on the basis that something could happen, so we're going to take this action now. That's hardly data.

[Evan Siddall]

With respect, I disagree. Our housing market assessment is based on models that are based on historical data, and our stress test is based on projections of our own insurance outlook. Those are data. Those are not opinions.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

That isn't what we've heard for 12 hours of testimony before us here, and I'm extremely disappointed that someone like you is making those kinds of recommendations to the finance minister based on what we've seen here today.