Just this morning we brought a positive, albeit subdued, report on the housing market from one of the biggest associations of professionals in the industry – CAAMP. Now though, we bring you an opposing view from more analysts in the industry. This time it’s Ben Rabidoux, an analyst with Hanson Advisor, and an expert known for his mostly bearish views. This time he says that there will be “significant collateral damage” from the housing cool down; and that those who believe we’re any different from the States need to take a second look.
Rabidoux says that the government has intervened so much that now it will be hard for them to get out of it without feeling a major pinch. He says it will actually be much more like a sucker punch.
“If you look at how levered our economy and our labour market is to this current housing boom,” Rabidoux says, “my position has been that it will be very difficult for policymakers to unwind this boom without significant collateral damage.”
And as for the argument that our position is nothing like that of the States just before their collapse? Rabidoux says that argument is “dramatically overstated,” and that it depends on what factors you’re looking at. He’s looking at our respective GDPs, and the number of insured mortgages that are currently on the table in Canada. This latter is something that’s come under heated debate from all sides regarding the housing boom; but Rabidoux says it goes farther than just putting taxpayers’ money on the line. And in the end, the insurance on those mortgages could amount to nothing at all.
“If we look at housing-related industries as a percentage of GDP, we’re well above where the U.S. peaked,” he begins. And he continues by saying that we’re not free from irresponsible lending, or people being left with homes that they simply can’t pay for.
“I work very closely with a number of front-line lenders and mortgage brokers and consensus is mortgage fraud is ‘widespread and under-reported,'” he says. “It’s difficult to make the case that we have run up our debt levels here in Canada to comparable levels in the U.S., but we’ve only ever done it lending to rock solid borrowers and they did it lending to anyone.”
His point is that not only is that no longer true, but there’s a whole other problem – mortgage fraud – that’s being completely overlooked. And that problem with government-backed mortgages? He says it wouldn’t surprise him to see the government start taking part in “put backs,” where they simply don’t cover mortgages that were’t applied for and approved under the strict guidelines major institutions are expected to follow.
“The problem with the thinking about the transference of risk here it is it all depends upon whether or not mortgage debt was initiated in a proper and complete fashion. And our research has uncovered that could be put-back risk in fact for Canadian financial institutions as a result of missteps in the underwriting process.”
And according to his latest predictions and notes, he doesn’t appear to believe that they have been.
