Perceived housing crisis simply not the case this side of the border
Johnathan Monk NHBA Structures Staff Writer
There’s a misconception out there that the Canadian
housing market is heading for, or in the midst of, crisis
mode in a state comparable to that of our U.S. neighbours.
However, that is simply not the case, says James Bazely,
vice president of Gregor Homes in Barrie, Ontario.
“Ours is a perceived problem,” says Bazely. “The situ-
ation in the U.S. and the one here are very different and for
two different reasons.”
He adds that, here in Canada, we didn’t have the nasty
sub-prime situation they’re currently suffering through
down below. In fact, he says, “Our banks are rated second
most sound in the world.”
The Canadian Home Builders’ Association agrees.
“The housing situation in Canada is totally different
from that of the U. S.,” the CHBA said in a recent state-
ment. “We did not experience the same housing boom con-
ditions that occurred in the U. S., and there is no reason to
expect that we are in for the serious pain they are currently
suffering.”
In the report, the CHBA insists the pace of housing con-
struction in Canada is merely returning to a level that is
consistent with underlying housing requirements follow-
ing the boom of recent years.
“There will be some price moderation in some markets,”
they said, “but there is nothing to suggest that housing mar-
kets in Canada are vulnerable to the oversupplies and
plunging prices that characterize many markets in the U. lender, not packaged and sold to third parties as is typical pecially in the nation’s capital.
S.” in the United States, and consequently, Canadian mortgage “The unemployment rate is still very low,” says Bazely.
To further dismiss the notion that Canada is in a U.S.- lenders have a vested interest in ensuring that their mort- “Only 40 per cent of the homebuilders have been laid off.
type tailspin, Scotiabank’s Global Economic Research gage borrowers are creditworthy and not likely to default. That’s normal. That’s the industry in the wintertime. There
group recently released an informative summary of the “There are lots of qualified buyers out there,” Bazely are always layoffs at this time of year. They (the media)
major differences in the U.S. and Canadian experience. says of his Canadian brethren, adding that now is a great don’t report on the 60 per cent that’s still working.”
Looking as far back as 1962, household liabilities as a time to buy a home. “Right now there’s a price adjustment In Ottawa, he says, the city enjoys great stability due to
percentage of personal disposable income were almost ex- happening and people are playing the wait-and-see game.” the federal government. There’s not a lot of layoffs going
actly the same for both countries at about 6.5 per cent, but “It’s definitely a buyer’s market,” he adds. “Qualified on in that area.
began to diverge and in 2006 the U.S. stood at 18 per cent buyers should not have issues. The builders will bend over Bottom line, he says, is that the province of Ontario has
while Canadian households sit at around 12 per cent. backwards to make things work.” not seen mortgage rates like this in a long time, or this kind
An even more harsh comparison looks at household li- Bazely adds that another reason for the perceived melt- of flexibility from the homebuilders.
abilities as a percentage of assets where in 1962 both coun- down is the image portrayed by the media. “Canada,” he says proudly, “is still a great place to do
tries were at about the 14 per cent level, but by 2006 U.S. “All they do is report the bad things,” he insists. business.”
households were at 26 per cent and Canada’s were at 20 The fact of the matter is that things are pretty normal, es-
per cent.
Canadian mortgage markets are fundamentally healthier
than the U.S. since only five to six per cent of our out-
standing mortgages are sub-prime versus 20 to 25 per cent
in the U.S. market.
The nasty sub-prime situation Bazely was referring to
started when a few major financial organizations in the
U.S. figured out how to legitimize loans to consumers who
couldn’t afford them, and then sell the ‘bad debt’ off at a
premium to other unsuspecting financial institutions as
‘good debt’. This ‘bad debt’ was much like a disease that
infected a significant portion of the worldwide financial
community and then spread into many other sectors before
its existence became known and an appropriate treatment
formulated.
Canadian mortgages are funded, underwritten and en-
forced in a totally different manner. The majority of mort-
gages are held on balance sheets with only 24 per cent
having been securitized. Thus much more of Canada’s
mortgage book is funded by on-book retail deposits than is
the case in the U.S.
Unlike in the U. S., underwriting standards for qualify-
ing mortgage borrowers in Canada have been maintained at
prudent levels resulting in mortgage borrowers here being
much more creditworthy.
Canadian mortgage lenders never offered low initial
‘teaser’ rate mortgages that led to most of the difficulties
for mortgage borrowers in the United States.
Most mortgages in Canada are held by their original
February 2009 NHBA Structures - A5
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