Canada's turn coming up: housing bubble!

[DucatiMonster696]

You just said a whole lot of nothing, and likely was the most politically ideologically motivated and non-economically nonsense in this thread.

The great variances between the two economies in the housing market
has already been corrected and is economically grounded.

A prime difference between any housing crashes/adjustments in as Canada and the USA is simply put -- the rate of change. Due to excessive and widespread fraud affecting all geographic and wealth sectors of the US housing market, it faced a RAPID crash.

By regulatory control, the relatively few housing debters in Canada who are as overly extended and in combination with the lack in number of fraudulent banking products built upon unrecoverable products, such a similar CRASH is not possible here.

As stated, only a couple of geographically isolated markets have been priced higher and more rapidly than what the domestic, and to a lesser extent, the international buyer market may bear. Due to such selling prices, these can apparently drive the AVERAGE selling price of whack, thereby skewing a market. Except for but a few relatively tiny regions, these skews can be reasonably adjusted to a more reasonable market rate when looking at the MEAN housing sale prices.

In particular the markets of Vancouver and its immediate cities, that housing market has been driven extraordinarily high by international capital - mostly based by new money in China. That has been well beyond the domestic economy means and has certainly reached a peak with few anymore unremarkable detached homes (some having received media attention as tear downs) and condos facing immediate bidding wars of over million for what should be around ~$600-750k. Such excess can be viewed as a pittance for family money that cannot buy into such a lifestyle and location anywhere back in the home market for that money's origin.

This is relatively new wealth and has been a strong driving force in the rapidly more costly Lower Mainland housing market for just over the past decade. Recently, many individuals of such family wealth are realising that the source of that money cannot be as easily attained where they have now chosen to live. There its becoming closed to a saturation for those wishing to expend and needing to buy into the market. This, in combination with a realisation that the market has peaked, has caused a slowdown in housing demand and sales. Yet this is hardly a country wide event.

Doppel, Ducati, and others, you have greatly failed in equating proposed fears of a Canadian housing crash equalling that experienced in the USA.

Different markets.
Different market demands.
Different degrees and numbers for who qualified and received mortgages.
Different degrees and numbers of banks and their clients holding unserviceable debt.
Different rates in foreclosures.
Different rates in the growth for the supply of housing upon the market.
etc...

None of those points have you addressed. All that appears is a conceited barb of 'you'll get your turn too.'

On to a biting critique of US ideological culture and blame for your housing ills... You have proved too radical, corrupt, and greedy in segments of your economy. You have paid a price and this has brought much of the world down with you. Though not all down as far. Unfortunately you have not learned and adapted to correct the ills that instigated your housing crisis and global recession that followed. You have plenty to learn and hopefully adopt from more economically CONSERVATIVE (note - not in political party name or ideology but that of general culture and practice) states such as Canada.

[edit - well no editing.... This was entered on my phone (gotta love Swype)...not the best platform for content creation and correction...the above errors will be kept]

Exhibit A. Selective quoting and butt hurt feelings at its finest.

I was not even remotely stating that Canada's housing bubble would "Crash and Burn". In fact I stated that the nature of the housing bubble bursting in Canada's housing market would depend on the nature of your particular situation in Canada which was done by using the analogy of "how deep you dug yourselves into a hole".

See sometimes people dig themselves into little holes and are able to find their way out and somethings people dig big holes and are stuck.

 

[blankslate]

While there is a bubble.

It's unlikely there are many people in Canada who are in as much danger as a large chunk of American home owners were/are because Canada still has more regulatory control over their banks when it comes to certain activities.

Meaning that "Liar's Loans" and other shens along those lines are not likely to have been as prevalent up north as they were in the States.

 

[ShawnD1]

While there is a bubble.

It's unlikely there are many people in Canada who are in as much danger as a large chunk of American home owners were/are because Canada still had enough control over their banks.

Laws are a good start, but the overall culture plays a role as well.

1. USA is an "ownership society" where owning a home is everyone's dream, and this idea is pushed by the government and advertising. When I see an ad on TV about mortgages or refinancing, 9/10 times it's on an American channel. Ownership rates in Canada are slightly higher than the US, but people don't really talk about it or glamorize it. There's no "Canadian dream" of owning a house with a white picket fence, and people won't do drastic things to reach that dream.

2. Americans have more incentive to go balls deep in debt just to escape the ghetto because American ghettos are worse than Canadian ghettos. I live deep in one of Edmonton's many ghettos, but I don't live in constant fear because the crime rate is still fairly reasonable.
Edmonton (Can) - population of ~800k - 40 murders was a record high, so I basically live in the murder capital of Canada.
Cleveland (USA) - population of ~400k - murder rate of 19/100k, so if Cleveland were as populated as Edmonton, the murder rate would be 152. Cleveland is not the worst US city, but it's still 3-4x worse than Canada's worst city.
I own this ghetto condo, and it's well below what I can afford. No sane American would choose to live in the ghetto just to save money, but it's not uncommon up here.

3. Americans need cars. As explained in #2, no sane American chooses to live in the ghetto, and the non-ghetto houses in the city are expensive, so where else can people find affordable housing? Way the hell out of the city so it's a 1 hour drive to work. This adds an enormous cost, especially if you're the type of person who buys new cars instead of used cars. Since I can choose to live in the ghetto, I can bus to work in 20 minutes, and I can sell my car if my situation becomes desperate. Middle class Americans who found affordable housing 50 miles out of the city can't do this. That makes them a lot closer to bankruptcy even if their house is the same price as my condo and they have the same income as me.

4. In the US, you can declare the interest on your mortgage as a tax deduction. In Canada, it's not. That interest is a post-tax loss and people try to avoid it like the plague. In theory, most Americans should avoid debt too, but lots of people don't seem to understand what a tax write off is. When someone hears 10k tax write off, they think that means $10,000 saved. If the person's tax rate is 25%, that 10k write off is really only $2,500 saved.
This difference in tax policy is why Canadians focus on equity accumulation instead of debt accumulation. Back in 2010, Canadians owned roughly 70% of total real estate value, but Americans only owned 45% of real estate value. Floating on debt like that is a huge risk. When it crashes, it crashes hard.

5. USA has privatized health care. This can add a huge amount of economic uncertainty when there is a round of layoffs. Once your health insurance is gone, the smallest health problem can force you to sell your house. Medical bills are the #1 cause of bankruptcy in the US, and lots of people doing this at the same time can cause the local housing market to crash.

6. In Canada, banks issuing loans retain full responsibility for the loan. If they give out a bad loan, they take a hit when the person declares bankruptcy. US banks are the opposite; they sell the bad loans to someone else, so there's no reason not to give out bad loans. This in combination with other policies is why the foreclosure rate in Canada is far lower than it is in the US.

7. Mortgage insurance is huge in Canada. Roughly 50% of Canadian homes are insured, and insurance is required if the down payment on the mortgage is less than 20%. The entire premium of the mortgage insurance is paid up front, and the insurance covers the entire life of the loan. This greatly reduces the rate of loan defaults. Just like the banks, the insurer does credit checks to make sure they're not signing up to cover a loan that is destined to fail.

8. Canada does not encourage poor people to own a home. In the US, the government actively pushes to get poor people with bad credit approved for loans, often at sub prime introductory rates. This is risky. In contrast, Canada helps poor people by subsidizing their rent. Also, I don't think Canada has housing "projects" like those in the US. They might exist, but I've never seen one even though I live in the middle of the ghetto in Canada's murder capital.

9. Canada only has 82 banks, and the top 5 control more than 80%. Such a concentration of banks means those top 5 have diverse holdings across the entire country. One city dying will not take down a bank. The entire country would need to fail before the banks would fail. Thousands of US banks died in the 1930s and 2008, but no Canadian banks failed.

10. Most banking in Canada is electronic. The lenders for my mortgage and my car would only lend me money if I gave them a void cheque and a signed sheet saying they have permission to take money out of my account electronically. This reduces the number of late payments or forgotten payments. It also means lenders do not give you the benefit of doubt. If you miss payments and don't correct the problem immediately, you'll be kicked out of your house immediately. According to Ontario’s Mortgages Act, power of sale (the lender selling your house) can begin in as few as 15 days from default. Leaving no room for error, Canadians need to stay on top of things and make damn sure money is in the bank when they try to take a payment. American deadbeats can stay in their homes for quite a while, but Canadian ones are kicked out immediately. You could say that this keeps Canada's housing market clean.

 

[3chordcharlie]

7. Mortgage insurance is huge in Canada. Roughly 50% of Canadian homes are insured, and insurance is required if the down payment on the mortgage is less than 20%. The entire premium of the mortgage insurance is paid up front, and the insurance covers the entire life of the loan. This greatly reduces the rate of loan defaults. Just like the banks, the insurer does credit checks to make sure they're not signing up to cover a loan that is destined to fail.

One minor detail - CMHC is directly paid by the lender, and then added to the loan (interestingly, the sales tax on the insurance is normally be paid by the borrower upfront).

 

[IronWing]

8. Canada does not encourage poor people to own a home. In the US, the government actively pushes to get poor people with bad credit approved for loans, often at sub prime introductory rates.

This is not accurate. The government did nothing to get people with poor credit approved for loans. The banks made loans to poor risks because the banks made money originating loans and truly believed the bubble would never pop so if the bad risks failed to pay up the bank could always sell the house for more later, after extracting a closing fees and a few months interest out of the marks.