Economist Benjamin Tal, one of the most well-known and respected voices in the mortgage and real estate market in Canada, has once again released a report in which he points to many factors differing Canada’s “housing bubble” from the complete meltdown that happened in the States. Still, there are disbelievers, such as Seeking Alpha, who say our home prices are simply too high; our banks aren’t as stable as we think; Canadian taxpayers are going to pay the price; and in effect, we are all doomed. In fact, this isn’t the case. Once again, we’ll back up Mr. Tal’s findings by stating why the Canadian housing market is worlds apart from that in the U.S.
In his most recent report Mr. Tal states,
“To be sure, house prices in Canada will probably fall in the coming year or two, but any comparison to the American market of 2006 reflects deep misunderstanding of the credit landscapes of the pre-crash environment in the U.S. and today’s Canadian market. The Canada of today is very different than a pre-recession U.S., namely as far as borrower profiles are concerned. Therefore, when it comes to jitters regarding a U.S.-type meltdown here at home, the only thing we have to fear is fear itself.”
Well, that may be a bit dramatic, but we get the point. But Seeking Alpha says that in fact, our borrower profiles aren’t that different. They say that our subprime mortgage market is at 50%, which means that half of our mortgages in this country are at high risk for default. But that just proves Mr. Tal’s point. It’s this kind of deep understanding that allows panic to set in, and get us to thinking that we’re headed for the same type of crash seen south of the border.
In fact, our sub-prime mortgage market is not at 50%. It’s actually nowhere near. We have stated before on this blog that high-ratio mortgages actually sit at about 5%, but even more recent statistics show that the number’s even lower at about 3%.
Seeking Alpha also hits the term “soft landing” very hard, saying that this is more wishful thinking on the part of economists than it is actual fact. Well, the part about it not being fact is true; no one knows what’s actually going to happen. But lets remember that trends are trends for a reason; because they’re fairly reliable and they tell us a lot about where our market is most likely headed. No one has a crystal ball, nor does anyone claim to. But judging from what we’ve seen, and the new policies that have been put into place such as the OSFI rules and the mortgage rules, there’s no doubt that a landing of some type is going to occur. And that it’s most likely not going to be a hard one.
Yes, our taxpayers may be at risk with the amount of insured mortgages currently on the market. Those mortgages, backed by the government in case of default, do pose a risk to taxpayers, but that risk is very small. And the federal government has recently reduced amortization periods on these mortgages to 25 years from 30, to reduce the amount of insured mortgages that are out there; thereby reducing the risk to those very taxpayers.
Seeking Alpha, just like so many others, points to the hottest (and riskiest) markets in Canada: Toronto and Vancouver, to point to the fact that we’re already in the middle of a free-fall. But let’s not forget that while these might be Canada’s two biggest markets, they’re not Canada’s only markets. There are thousands of others, and these have been chugging along just fine before the recession, during, and after. It’s these regions, such as the booming province of Saskatchewan, and the Calgary mortgage market, where even luxury homes are doing well, that will continue to support Canada’s housing market. Even during the soft landing that we’re just now starting to experience.
So, one more time. When looking at accurate facts, and accurate similarities and differences, it’s very easy to see just how different we are than the United States. And why it’s those differences that are going to protect us – even now, while many prices are still climbing.
