NHA MBS Levels are Dropping – What does that mean?

To really understand what it means when NHA MBS levels fall, you first need to know what the NHA is, and what its MBS are. And even though it might all sound like too much, it’s really very simple, and a concept that most of us are already familiar with. The NHA is the National Housing Act, an act implemented in 1983 and that is now regulated by the CMHC – the Canada Mortgage and Housing Corporation. The NHA’s MBS are mortgage-backed securities. In other words, these are the mortgages insured by the CMHC. And these insured mortgages have recently made news as the number of them dwindles. But what does that really mean?
If you look at the chart above, you’ll see that in 1987, just four years after the NHA was implemented, insured mortgages were still very much non-existent. This wasn’t necessarily because of the Canadian economy at the time, but rather that the plan was still relatively new, and not many people were aware of it. Over time, and as more people heard about the Act, that number of insured mortgages rose steadily. Then, in 2008 the number spiked to record highs, as the housing bubble in Canada grew and more people took on more mortgages – many of those mortgages being ones that the homeowners couldn’t afford.
By 2010, it seemed that we might be getting back on our feet, and that Canadians were either no longer taking on mortgages when they weren’t in a position to do so; or people just started seeing their income levels and the economy climb back up after the recession. The number of insured mortgages dropped in 2010 by over $40,000, compared to just two years prior. And now, even though the 2011 year isn’t over yet, it looks like the number might drop even further. But what’s the reason for this? Are people still scared of the housing market, or are they really just in a better position to afford their mortgages?
According to a recent report from the Canadian Real Estate Association, it would seem the latter reason is the correct one. The CREA report stated that September saw an 11% increase in the amount of homes sold between September 2010 and September 2011. And in the same report, the CREA also stated that home prices were up to an average of $352,600. Combine that information with the recent report about the NHA’s mortgage-backed securities, and there’s really only one conclusion to draw.
Canadians are buying more homes now than they were a year ago, and they’re paying more for them. Yet, the number of insured mortgages under the NHA is dropping. There’s only really one way to interpret that, and that’s as hard evidence that Canada’s economy is improving, and that Canadians are now better able to afford their homes; and that Finance Minister, Jim Flaherty was probably right when he said that Canada is not headed into another recession.