Random thought…if real estate is such a ‘safe’ investment, why won’t the banks touch it?

Interesting thought, no?  I’m working on another primer, which I hope to post later today.  I came across this interesting chart in a recent CMHC publication.  You’ll notice that the banks have not increased their holdings of residential mortgages one penny since 2007.  Why is that?

The largest growth in mortgage credit came via Mortgage Backed Securities (the yellow component of the bar).  This is where mortgages are bundled together and sold to investors.  They trade as Canada Mortgage Bonds and are essentially as risk-free as Government of Canada bonds since the vast majority of the mortgages are insured by CMHC, a government agency.

Still….why aren’t the banks lending?  Do they see the writing on the wall?  Any insights?

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5 Responses to Random thought…if real estate is such a ‘safe’ investment, why won’t the banks touch it?

  1. Dontcallmeshirley says:

    The banks don’t want this action because they see no utility in lending out billions that earn only a 1-1.5% profit spread. It’s only commercially viable to securitize it off to the government.

    A better question to ask is how securitization can be profitable for the government at such a low spread.

  2. I’ve got to say that this was a solid read. I actually felt like I’ve learned something new and exciting! Thank you so much.

  3. Sam says:

    How much meat and potato can one person eat? At some point, you switch to lobster. If anyone here has financial positioning experience, every trader has risk limits, VAR, etc they have to respect.

  4. Oralee Gimm says:

    good stuff. Do you have an RSS feed? And also would it be cool if I put in your feed to a site of mine? I have a blog that draws content by RSS feeds via a couple of sites and I would like to include yours, the majority of people really don’t mind given that I link back and everything but I like to get authorization 1st. Anyhow let me know if you could, thanks.

  5. Pingback: Bank of America Merill Lynch weighs in on Canadian real estate | Financial Insights

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