CALGARY: Low oil prices could cost Canada’s federally owned mortgage insurer $7 billion a year in lost profits, though the organization’s top executive said Monday the oil price collapse will not drain its capital to unsustainable levels.
The head of the Canada Mortgage and Housing Corp. said his organization has stress-tested the effects of sustained US$35 per barrel oil prices and the result is massive foregone profits for the Crown corporation.
“Noteworthy in the Alberta of today, the ‘low oil’ case costs us over $7 billion in lost profits,” CMHC president and CEO Evan Siddall said during a speech at a C.D. Howe Institute in Calgary on Monday.
He added, however, that the company would still be 370 per cent over its minimum capital requirements, avoiding a situation where the CMHC would not be able to insure mortgage defaults.
“The bottom line: it would take a very severe housing downturn and a big jump in national unemployment rates, both persisting for a number of years, to start eroding our capital in a significant manner,” Siddall said.
Housing prices in Alberta have declined as sales slowed over the course of the oil price collapse, which has now dragged on for 19 months. Home prices in Calgary are forecasted by the Calgary Real Estate Board to fall a further three per cent this year.
Much of Siddall’s speech was aimed at the C.D. Howe Institute and some of the critical studies that the think-tank has published on the CMHC’s faults.
He said CMHC exists as a “stabilizing presence in Canada’s economy” especially during downturns in the housing market and said Crown corporation should not be privatized, despite arguments by some of the think-tank’s contributors.
Siddall also highlighted that CMHC’s share of the mortgage insurance market has fallen from 85 per cent in 2009 to 50 per cent in 2015, and reiterated earlier statements that the CMHC intends to maintain that level of market share.
“We believe that our current market presence — which is around 50 per cent of the mortgage loan insurance market — is close to the minimum necessary to satisfy our mandate,” Siddall said.
The one area where Siddall said the CMHC is concerned is by Canadians’ high levels of household debt. “Indeed, the high level of household debt, at 165 per cent of disposable income, worries us,” he said.
