Will Canada's Housing Market Crash?

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Yesterday, I wrote about the possibility of a Canadian mortgage crisis akin to the American mortgage crisis.  It would have been less controversial to side with the CBC decision to cancel its renewal of "Hockey Night In Canada" theme song.  To my brothers and sisters in The Great North:  It was a warning, not a criticism.

I'm not alone in my warning.  Here are some articles offering caution:

The Canada Mortgage and Housing Corporation (CMHC) warns of slowed housing starts:

"Strong economic fundamentals such as continuing high employment levels, rising incomes and low mortgage rates will provide a solid foundation for healthy housing markets this year," said Bob Dugan, Chief Economist for CMHC. "Most of the pent-up demand that built up during the 1990s has now been fulfilled and residential construction activity will gradually move in line with Canadian demographic fundamentals. These factors will continue to exert downward pressure on housing starts, which will decline to 199,900 units in 2009."

Michael Shapcott at the Wellesley Institute notes the housing affordability problem in Canada:

The housing affordability gap the difference between actual incomes and the incomes required to afford a private rental unit is growing. And, as the affordability gap grows, renter households have less money to pay for other necessities such as energy, food, medicine, transportation and clothing.

Mark Argentino from the Mississauga Real Estate Blog, reported that the CMHC expects demand for housing to put downward pressure on prices.

Garth Turner documents the decreased housing resale volume and excessive leverage carried by Canadian homeowners on Greater Fool.

HouseHuntVictoria pleads with the CMHC to boost reserves for impending foreclosures:

One fact remains undeniable: never before has the Canadian taxpayer been more exposed to private lending practices than it is today. And as the real estate market winds down and inevitably contracts from its unprecedented expansion, Canadian taxpayers may well end up "insuring" the bad lending practices of banks, private mortgage lenders, the speculative buying activities of would-be real estate investors and the poor insurance decisions of CMHC who agreed to back them.

Does any of this sound like America in 2005?  This is a warning Canadian investors not a prophecy.  If you're heavily invested in Canadian real estate, it may make sense to diversify and take advantage of the currency disparity by investing in an already decreased asset.


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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

This is funny.  What's the old saying?  The U.S. gets a cold and Canada sneezes. 

We'll watch and wait.  Of course, we're sending $Billions up north for oil because we can't use our own. 

Everyone is nuts.


Jun 07, 2008 11:47 PM #1
Neal Bloom
Brokered by eXp Realty LLC - Weston, FL
Realtor CRS-Weston FL Real Estate

I'm not sure but I'm selling them RE here so they are bringing their dollar here to still take advantage of our low market. And they are bringing cahs so maybe they like our market better now and are just preparing themselves for a permanant move to the states.

Jun 08, 2008 12:26 AM #2
Bryan Flynn
Regency Mortgage Corporation - Worcester, MA
Central Mass and Worcester Mortgages

The writing does seem to be on the wall up there.......Neal they are taking advantage of the weak US dollar down here.....don't blame them.

Jun 08, 2008 11:59 AM #3
Arina Hanciulescu
RealtyPros - Las Vegas, NV

Brian, I guess you pin pointed the situation, it does sound like America in 2005...The ball started rolling. Others are going to go on line and take a number... 

Jun 13, 2008 03:32 PM #4
Doug Lacoste

There was more bad news about the Canadian housing market this week. The Canadian Mortgage and Housing Corporation (CMHC) have warned that the number of property sales could fall as much as 40% this year. The announcement came just days after the Housing Minister Monte Solberg's refusal to attend a national housing meeting with provincial and territorial ministers and then inadvertently revealed that the Government believes there will be a 5% to 10% drop in prices this year "at best". Meanwhile, mostly economists at banks and building societies - believe the falls in prices will be limited to low, single digits. But while the jury's still out on whether there is going to be a crash or a modest decline, there does now seem to be a broad consensus among the experts' that house prices will be lower at the end of the year. So, is it finally time for first-time buyers to crack open the champagne and celebrate? If you're a homeowner, should you be crying tears into your pillow?  Who are the real winners and losers when house prices fall?  The most obvious winners are first-time buyers.  Not only are prices becoming more affordable, but it's a buyer's market now, with properties taking 50% longer to sell than this time last year and asking prices dropping, on average, around 27% before a sale can be agreed.* First-time buyers are in a particularly strong position because they are chain-free buyers. So far, so good. But are all first-time buyers winners when house prices fall? Since the credit crunch, it has become much more difficult to get a mortgage, with lenders pulling deals left, right and centre. Even if you can find a cheap mortgage deal with a low rate, you may not be eligible for it. It all depends on the size of your deposit. Due to the increased risk of negative equity when prices fall, mortgage lenders are becoming increasingly wary of lending to borrowers with small deposits. While you can still get a mortgage with a 5% deposit, you'll have to pay a higher rate. According to the Royal Bank of Canada (RBC), the average two-year fixed rate (taking into account the fees) is now almost 7%, compared to 6.3% last July. On the plus side, those that can save are benefiting from rising savings rates, as banks compete desperately to lure in your cash during this economic downturn. The most obvious losers, you might assume, are homeowners. After all, when prices fall, they lose money.

Jun 19, 2008 04:14 PM #5
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