Car loans, new mortgage changes & the latest on rates: BUSINESS WEEK WRAP
The head of the CMHC made headlines this week when he said Canada's housing agency is working on finding ways to let some of the air out of Canada's hot housing market.
Evan Siddall, the president of the Canada Mortgage & Housing Corporation, told Amanda Lang's new show this week that one of the things the agency is looking at is getting banks themselves to take on a little more of the risk when they issue mortgages.
Currently, anyone who puts down less than 20 per cent on a home has to pay for CMHC insurance or insurance from a private sector lender against default. But the homeowner isn't the beneficiary of that policy — any money paid out would go to the bank that gave out the mortgage.
It sounds like a pretty good deal for the banks — after all: you pay the premium, while they get the benefit — but Siddall said he'd like to see the banks take on a little more of the risk in that relationship, as an indirect way of restoring a little caution to the mortgage market.
As much as it seems like a big risk a bank takes when it loans you a mortgage, in reality taxpayers back CMHC-insured mortgages 100 per cent, and even private sector rivals like Genworth up to 90 per cent. That can be a risk as bank's aren't really risking their own money if they give out dodgy loans.
"We’re in the process of looking at different options that will take a few years to evaluate, but the idea is that people should have skin in the game," Siddall said.
Bank of Canada stands pat — again
Another agency with debt loads very much on the mind this week was the Bank of Canada. The central bank put out its latest policy decision on Wednesday. Just as it has done every six weeks dating back to early 2010, the bank kept its benchmark interest rate at one per cent. And nobody was expecting anything different this time, anyway.
But the tone of the statement that accompanies the decision is closely scrutinized by market-watchers and, on that front, the bank said a lot.
Bank of Canada governor Stephen Poloz warned against a "disorderly unwinding" of Canada's housing market on Wednesday, which is the central bank's way of saying we need to be vigilant about anything other than the "soft landing" in real estate that policymakers are trying to achieve.
Housing vulnerability comes at an especially bad time because another central plank of Canada's economy, manufacturing, doesn't seem able to pick up the slack.
A suddenly strong U.S. economy should be good news for Canadian manufacturers, Don Pittis wrote in these very pages this week. But that's not happening this time around because factories were shuttered and cut to the bone to save on costs during the recession.
Unless somebody figures out a way to boost growth without basing it on more debt, it could be a bumpy road ahead.
Car loans getting longer
That's certainly the case in the car industry, where Moody's came out with an eye-opening report this week.
The good news is that Canadians are buying more cars, rebounding nicely from the recessionary low in sales. But the bad news? We're taking longer and longer to pay them off.
The average length of a car loan has increased by five months since 2009, Moody's said this week. That may not sound like much, but all those extra payments add up.
If a buyer takes five years to pay off a new $26,000 car, there's a decent chance they can sell it for what they owe on it after four years, Moody's said. But that same car loan spread out over eight years leaves the buyer underwater six years after they've bought — owing more money on the car than they could get for selling it.
With math like that, the trend of ultra-low car loans sounds like a lemon to us.
Remote car starters recalled
That wasn't the only troubling news out of the car industry this week. The CBC's Aaron Saltzman reported this week about countless car starters across Canada that can render the vehicles inoperable.
Remote car starters are never sold on new cars, but have become popular as add-ons in the cold Canadian climate because they allow the user to start and heat up their car before they leave the house.
The problem? A California company called Directed says in some cases, some of the models can actually turn off the engine once it's been started and while the user is driving.
"If you lose the power from your engine, you're going to lose your power brakes, power steering, supplemental airbags," installer Charles Lamble from Sault Ste. Marie said. "It's as if someone turned the key off while you're driving,"
Recalls are nothing new to the auto industry. But the recall of remote starters is tricky because there's little regulation governing auto after-market parts. Transport Canada and Health Canada spent a while arguing over jurisdiction and this recall fell to Health Canada, which doesn't seem to know how many cars are affected.
The company says thinks there could be as many as 8,000 remote starters installed in cars across the country, but only 109 of them have been brought in to be repaired.
Here's some other stories that went viral this week:
- How foreign streaming could tip the Rogers/Bell apple cart
- Blackberry shares jump on Lenovo takeover rumour
- Oil patch faces project cancellations with $82 crude
- McDonalds sales slide, Coke falls flat as consumer tastes change
- Jacob to close all 92 remaining stores
- How libel chill is quashing negative online reviews
- Remote starters recall reveals gap in Canada's notification system
- Bank of Canada holds rate steady at 1%
- Longer car loans a growing risk, Moody's says
- Stephen Poloz awaits sunrise after long industrial sunset
- Google claims it installed 'unbreakable' encryption after NSA spying
- Gluten-free market is booming, but research isn't sold
- Digital wallets make it too easy to spend, experts say
- Sitting is killing us and costing us billions, study suggests