“A great buyer’s marketing is hurtling towards us,” writes Fabrice Taylor of the Globe and Mail. “Get used to it,” she advises readers, concluding that a decade-long bull market in Canadian real estate is at its inevitable end.
Meanwhile, as perennial doomsayers like Garth Turner insist that there is a housing bubble which will burst – any day now – as they have since the U.S. housing market first tanked in 2008, more mainstream analysts surmise that recent data on Canada’s residential mortgage and housing markets are indicative of cooling real estate markets in the last quarter of 2010 and into 2011, as housing starts falls and home sales return to historical norms after a significant run-up in 2009 and 2010.
Analysts point to historically low interest rates in 2009 and the first two quarters of 2010, combined with newly tightened mortgage rules and the introduction of the Harmonized Sales Tax in B.C. and Ontario, to account for the last growth spurt in a historic bull market for housing. Economists note that a bubble requires what they term “irrational exuberance” to inflate a market to the bursting point, following which potential buyers wholly disappear, in effect, bursting the bubble.
While some comparisons to the pre-2008 U.S. markets are valid, analysts note that more conservative borrowing habits amongst Canadians, tighter mortgage rules and higher lending standards amongst Canadian banks, prevented a bubble market north of the Canada/U.S. border. (Canadian banks largely kept the mortgages they wrote on their balance sheets, instead of “securitizing” a bunch of bad, sub-prime loans, and selling the resulting opaque, asset-backed commercial paper to third party investors.)
One factor that led to “irrational exuberance” over U.S. housing, a factor most-often overlooked by habitually-bearish housing market forecasters such as Mr. Turner, is the role that quasi and outright fraudulent practices played in the U.S. mortgage market – a role that became readily apparent as the federally-appointed Financial Crisis Inquiry Commission (FCIC) began hearings in Sacramento, California. (In many ways, Sacramento – the state capitol, located in California’s once-booming Central Valley – was ‘Ground Zero’ of the U.S. housing implosion that sparked the 2008 financial crisis and the resulting ‘Great Recession’.)
The local Bellingham Herald reports how one real estate appraiser described widespread corruption, detailing how “lenders pressured her peers to approve shaky home appraisals in order to keep loans flowing”. “Just about everyone involved thought they wouldn’t get caught by regulators,” she told the FCIC. In other testimony, the president of a Sacramento credit union described the process by which, “(r)isky lending drives out prudent lending” The result of which being that, “conservative lenders found themselves losing market share to firms willing to peddle easy-money loans to borrowers.”
Comparative analyses forecasting the bursting of a “housing bubble” in Canada which overlook the central roles that securitizations and widespread corruption in mortgage writing played in the U.S. housing crunch do not paint an accurate picture of Canadian home mortgage and real estate markets.
The FCIC is expected to deliver its reports on the causes of the financial crisis to Congress in mid-December.
