Although many Canadians may be suffering from the recession, this country has managed to avoid the very difficult situation currently faced by the U.S. housing market.
Recent reports noted that the U.S. economy did not shrink as much as had been anticipated in the second quarter of 2009. While that is definitely good news, the outlook on the housing front is considerably less rosy.
Bloomberg News reported earlier in the spring that nearly 22% of American homeowners owe more on their homes than their homes are worth. The term they use is “underwater”. Sadly, that number is likely going to increase. A report on the Business Insider offers a clear, albeit troubling, summary of how debt problems and reduced housing values are affecting Americans.
It seems that housing values in the U.S. have not yet bottomed out. In fact, the prediction is that they will drop by another $3 trillion to $15 trillion, down from about $25 trillion only a few years ago. Of course a drop in value does not mean a drop in money owed. Americans still hold large mortgages, with a a debt-to-value ratio of 80% being common. With loans at that level, all it takes is a 20% drop in value to put a homeowner underwater. With housing values already down 30% and forecast to drop by another 10%, the picture is not a pretty one.
In Canada, on the other hand, house prices are stable and homeowners hold a lot more equity in their homes. The Canadian Association of Accredited Mortgage Professionals (CAAMP) reported in April of this year that the value of Canadian owner-occupied housing stands at around $2.67 trillion, with some 72% if that total being homeowner’s equity.
There is no joy in the U.S. situation, and no cause for smugness or gloating here. But Canadians can be genuinely grateful that the terrible situation that continues to plague U.S. homeowners has not taken root here, nor is it likely to.
