Category Archives: Canada

Uh-oh Canada: Record debt threatens stability

Canadian debt is now almost triple the size of the national economy. How did we get here? A decade long housing boom!

While Canada boasts the lowest government debt load among Group-of-Seven countries, household debt is the highest of its peers, the Basel, Switzerland-based BIS said last month in its quarterly report. In September, Statistics Canada reported household liabilities rose to 100.5 percent of GDP, exceeding the size of its economy for the first time.

Canada was the only developed country showing early signs of stress in its domestic banking system amid “unusually high” credit growth relative to GDP, the BIS said.

“This debt overhang represents one thing and one thing only: a pervasive constraint on Canada’s economic growth potential,” David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates Inc. said by phone from Toronto. “When you get to levels on total debt that makes even the Italians blush, you know you’re in a straitjacket.”

Read the full article over at Bloomberg.

Non-bank mortgage lenders don’t like new rules

It’s looking like lending for real estate is going to get a bit more pricy as Ottawa tightens rules and seeks to offload some risk.  Many lenders in this Globe and Mail article feel blindsided by the change and complain that it’s unfair as they will not be able to compete with the banks:

Non-bank lenders left reeling by new federal mortgage rules

The new rules kick in November 30th after which lenders will not be able to insure mortgages with amortization beyond 25 years or on homes over $1million or rental properties. I guess we’re about to find out the price of risk in these no longer covered categories.

Four major changes to Canadian housing rules

Vancouver home sales have plunged by about a third in the last month or so, this been largely blamed on the foreign buyer tax.

But that tax focused on the city of Vancouver isn’t the only change to the real estate market, new rules and changes have the potential to affect the wider region and the nation as a whole.  Southseacompany posted this summary from a Globe and Mail article  in the comments:

“Four major changes to Canada’s housing rules”, Globe & Mail

1. Expanding a mortgage rate stress test to all insured mortgages.

2. As of Nov. 30, the government will impose new restrictions on when it will provide insurance for low-ratio mortgages.

3. New reporting rules for the primary residence capital gains exemption.

4. The government is launching consultations on lender risk sharing.

As Canadian Mortgage Trends puts it, is this the last nail in the coffin?

NOTE: disagreements are fine, but repetitive personal attacks and insults to other posters will get you an IP ban.

Just like London, Stockholm & New York

So are we ‘world class’ yet?

Despite not making it onto lists of the worlds most economically powerful cities, Vancouver is finally being compared to London, Stockholm & New York and we come out on top!

Swiss bank UBS has named Vancouver the city with the worlds riskiest housing bubble:

UBS said Vancouver prices were unaffected by the financial crisis in 2008 and continue to rise despite weakening commodity prices.

“Over the last two years, the housing market has gone into overdrive due to strong demand for local properties among foreign investors and a loose monetary policy,” the report said.

“Currently, house prices in Vancouver seem clearly out of step with economic fundamentals, and are in bubble risk territory.”

Hot on the heels of Vancouver are London and the Swedish capital, Stockholm. The report stated that, with the exception of Milan, low interest rates in the euro zone have pushed all the European cities reviewed into bubble territory.

Read the full article over at CNBC.

The ‘cry wolf’ club

There are a few organizations that have raised a public alarm over the state of the Canadian housing market, with particular focus on Toronto and Vancouver:

The IMF, The Bank of Canada, The Canadian Mortgage and Housing Corporation, The Office of the Superintendent of Financial Institutions, Most of the big banks, The OECD, and more.

It seems that everyone is freaking out about the Canadian housing market.

Despite industry assurances that the hottest housing markets in Canada, particularly Vancouver, will always remain hot, and that it is physically impossible for prices to decline in this miracle economy, Canadians are now becoming aware that those assurances have just been another load of industry hype. And a larger share of them are starting to grapple with a new reality – a reality in an over-leveraged, inflated housing market where prices have come to rest on the edge of a cliff.

In Vancouver’s once white-hot commercial real estate market, the hunt is now on for Chinese buyers as big institutional investors are trying to unload.

And yet, despite years of warnings here we are near record high house prices. If you bought a few years back and sold a month ago, you’ve done quite well.

So it seems we’re now entering another down phase, with reports of softening sales and prices, especially at the high end. The warnings are getting louder, but of course there are always people who propose that this market is different and will never truly crash.

Sometimes the number of warnings and lack of crash almost seems to prove it – Just like the boy who cried wolf, we start to get desensitized to all the warnings.  Unfortunately for some of the villagers we all know how that story ends.