U.S.-type crash not likely to happen here

It’s unlikely Canada will see anything similar to the housing bubble and subsequent crash that plagued the United States 10 years ago.

Research from the Chartered Professional Accountants of Canada – the national body for the industry – found that despite increased in household debt and rising house prices, the market here is more resilient than it was a decade ago south of the border.

Factors like lax regulation and sub-prime mortgages issued to homebuyers with poor credit were to the U.S. collapse. However, the Canadian Mortgage and Housing Corporation, which insures Canadian mortgages in cases where buyers cannot make a 20 percent down payment, reported that the number of borrowers with high credit quality has risen from 66 per cent in 2002 to 88 per cent in 2017. Meanwhile, those with low credit quality shrank to just three per cent from 17 per cent over the same time.

“Beyond prices and debt levels, Canada shares far fewer similarities with the U.S. than you might think. This becomes very apparent when you look at just one measure; credit quality,” said Francis Fong, CPA Canada’s chief economist and author of the study, The Real Story Behind Housing and Household Debt in Canada: Is There Really a Risk?

That’s not to say there are no risks in the Canadian market, but any crash would bear little resemblance to what happened in the United States, the group said.

“The situation in Canada is likely not a bubble in imminent danger of deflation; in fact, housing prices may reflect the true value of living space in Canada and in some markets increased household debt may be the new price for real estate,” says Fong. “Our cities frequently are listed among the best places to live and work in the world and, compared to their peer cities abroad, they are not among the most expensive. We may simply be dealing with the law of supply and demand, so affordability could continue to be a challenge for the foreseeable future.”