Quote:
Originally Posted by freeweed
And the differences are much larger, and important in understanding what caused the housing collapse in the US. Things that happened down there that do not exist in Canada:
- Predatory lending practices
- 40-45-50+ year mortgages
- 0% down-payments
- Interest-only mortgages
- Never checking if people can actually pay their mortgage payments
- Lenders not financially linked to homeowners, encouraging the above
- Banks going insolvent when as few as 1% of their clients go into foreclosure
- Insolvent banks spreading the lack of credit to each other, thereby guaranteeing more homeowners would go into foreclosure the instant anything averse happened to them
Etc, etc, etc.
The only parallel that exists is that housing prices are up, and interest rates are low. However, the US market completely imploded with no real change in interest rates, which is the doom-and-gloom predicted in this article. In short, there really isn't any parallel, certainly not a very scary one. It's more of a co-incidence than anything. We don't have subprimes, we don't have CDOs, we don't have CDSs. At least nowhere near the extent the US financial industry was allowed to get into.
A housing bubble bursting is certainly possible in Toronto and Vancouver, but the rest of the country really isn't seeing it. House prices in every other major city are well in line with incomes and most people can easily afford a hike in interest rates. And at any rate, a collapse in those 2 cities would have little to nothing to do with what happened in the US in 2008. Until I hear of someone earning $30,000 a year pumping gas qualifying for a mortgage on a $500,000 house, I'm not exactly going to panic. |
There was a study which linked that 20% of homeowners would be pinched hard if rates were to jump 2%. The fact of the matter is that collectively 74% of Canadians own real estate with totals of mortgages at around 600$ Billion Dollars (equal to a national debt).
Canada has/had the same dirty tricks the Americans had. Ours were just more subtle. Examples
Canada had Cash back mortgages ... essentially sub-prime in which people could borrow the 5%+ needed to put towards a down payment.
Its not hard to get a mortgage anybody with a pay cheque as a co-signer can get things through. The Banks know they will get their money via CMHC or by taking away your assets. This is unlike the states where people could get around getting the banks their cash.
The majority of mortgages token upon by Canadians were of the 0/40 - 5/35 variety. The largest increases in mortgages issued occurred when Harper let the taps run on easy credit.
Yes our banks did not need to swish money around amongst each other to shore each other up. why? Because all of out Mortgages are already backed by taxpayers. America had to bail out the mortgages after the fact are already backed up by CMHC whom holds 600 Billion worth of insurance to the banks.
Its a myth that Canada was any more "prudent" then the Americans. We only had 6 major players in the mortgage game versus in America you had a host of institution and private lenders. They ran there gambit with a touch of class because like I said they are guaranteed their money they did not have to sling mud like we saw in the states. The damage is the same if not more though. Are debt levels are greater to the America prior to the bust and now in a nation where 85% of Canadians live in Cities the majority of Cities have seen home prices rise to unafordable levels. Incomes are not rising, prices and inflation are kicking up each year at levels between 7-10%.
The myth is to think prices can rise at these rates without an equal dump. The majority of Canadian and especially boomers have the majority if not all of their worth in housing at a time its quite clear the market is a basketcase.