Ever since we all watched the housing market across the border crumble under complete collapse in 2008 we haven’t been able to keep ourselves from making our own comparisons. Are we as bad off as they were? Are we doomed to the same fate? And no matter how many times experts and analysts say that we are not like the States, still we disbelieve. Now, there’s another argument that’s here to persuade Canadians that we’ll be just fine come this housing correction.
It was National Bank Financial that undertook a study to deem the credit-worthiness of mortgage applicants in Canada, and compare it with what was seen in the U.S. just before they fell. They found that lending practices for mortgage debt at Canadian lending institutions are much higher than they were in the United States before their housing market imploded, and even in the time before leading up to the crash. And for those that need cold hard facts to back that up, the bank has got those, too.
It all comes down to mortgage insurance, and what mortgages are backed by the federal government in both the United States and Canada.
In the United States the amount of mortgages backed by Freddie Mac, the American equivalent of the Canada Mortgage and Housing Corporation, peaked at 28 per cent at the end of 2006. It wasn’t long after that the credit crisis hit, and the American housing market tanked.
The American market is no longer well on its way to recovery – it’s all but recovered. Housing prices are climbing in most areas, and the market is seeing a burst of both domestic and international activity right now. The amount of mortgages backed by Freddie Mac has come down significantly; and at the end of last year it sat at only 8 per cent.
At the end of last year in Canada however, the amount of low credit mortgages backed by the CMHC was only 7 per cent, one per cent lower than what’s see in the States right now. That amount had topped out at 14 per cent in 2008; and had fallen to just 13 per cent in 2009 before finally settling in at the 7 per cent where it currently sits.
The bank points out that the problem of low credit borrowers is just one piece of the puzzle when it comes to crisis in the housing market, but that looking at these numbers would suggest that we’re not due for the same kind of collapse that was seen in the States.
Stefane Marion, chief economist and strategist at National Bank Financial says though, Canadians still need to be careful. We have no crystal balls, and the only way to best predict the future is to act responsibly and prevent ourselves from ever getting there in the first place.
“You can never say never,” says Marion. “A credit accident can happen.”
The bank does believe that a housing correction is coming in Canada, but their prediction is far less dire than what was seen south of the border. Mr. Marion expects that the correction will be somewhere between 5 and 10 per cent.
