Why did Canada’s housing market not suffer (yet) as much as the US? The media will tell you it’s our top-notch banks, prudent lending system and strong fundamentals. But take a close look at the graph below:
The US and Canada both had an uninterrupted housing boom that lasted 7 years, with US starting and ending roughly 2 years before Canada. After US banks began failing and world stock markets collapsed in Oct 2008, unprecedented stimulus measures were taken simultaneously by Canada and US.
The key point the above graph illustrates is that by the time stimulus was started, US home prices had already been falling for 3 years while Canada had just started their decline 1 year prior. As a result of the shorter stimulus response time in Canada, our housing prices and banks took a smaller hit.
Notice how similar the effects of this stimulus have been to home prices in both countries. By slamming interest rates to the floor, injecting $110 billion into Canadian banks ($65B from the Insured Mortgage Purchase Program and $45B from Bank of Canada) and creating home buyer incentives (US), housing demand was dragged forward and created a temporary rally in home prices. Even more interesting is how the stimulus effects have started to wear off at the same time in both countries.
And are our banks really more prudent than those in the US? As Ben Rabidoux noted on his blog, take a look at the bank leverage ratios (courtesy of Eric Sprott):
The media is right – it’s different here. It’s worse.
submitted by: crashcow
