Our housing market 'totally different' than in U.S., builders say
There will be some moderation. But we will avoid a meltdown, analysts say
By ERIC BEAUCHESNE, Canwest News Service
The Canadian housing market is cooling but is not facing a U.S. style meltdown, builders here say.
"A few commentators have drawn a parallel between the Canadian housing situation and the extreme difficulties in the housing market in the United States," the Canadian Homebuilders said in a report yesterday that dismisses such comparisons.
"There is absolutely no merit in drawing such a parallel," it said in the report, which contends the pace of housing construction in Canada is merely returning to a level that is consistent with underlying housing requirements following the boom of recent years.
"The housing situation in Canada is totally different from that of the U.S.," it said. "There will be some price moderation in some markets, but there is nothing to suggest that housing markets in Canada are vulnerable to the oversupplies and plunging prices that characterize many markets in the U.S.
"We did not experience the same housing boom conditions 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," it said.
The moderation of house prices will improve affordability and create opportunities for first-time home buyers, it said. Meanwhile, existing homeowners have little to fear.
"For those selling a home and buying another, the moderation of housing prices should be relative - there should be no significant gain or loss from the easing of house prices," it said
"For those who have owned a home for some period, their equity will be substantial, given the rising prices of the past few years," it said.
"For those who purchased their home recently, there should be few worries about a modest temporary reduction in value."
To support its argument that the Canadian housing market is not going the way of the U.S. market, it cited a variety of differences:
Unlike in the U.S., underwriting standards for qualifying 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 U.S.
Most mortgages in Canada are held by their original lender, not packaged and sold to third parties as is typical in the U.S., and consequently, Canadian mortgage lenders have a vested interest in ensuring that their mortgage borrowers are creditworthy and not likely to default.
Only 0.3 per cent of Canadian mortgages are in arrears vs. 4.5 per cent in the U.S. and what even before the start of the U.S. housing meltdown two years ago was two per cent.
Canadians tend to pay down mortgages faster than in the U.S., where mortgage interest is deductible from taxes, which encourages U.S. homeowners to take equity out of their homes to finance other spending, a difference that is reflected in the fact that in Canada mortgage debt accounts for just over 30 per cent of the value of homes, compared with 55 per cent in the U.S.
In Canada, home prices are down 9.8 per cent from a year earlier, compared with an 18-per-cent drop in the U.S. from what were already deeply depressed prices a year ago, the latest real estate industry figures show.
Most analysts here agree that Canada should avoid a U.S. style housing market meltdown.
Michael Gregory, senior economist with BMO Capital Markets, said recently that "we won't even come close'' to what is happening in the U.S. thanks to stronger employment and income growth here as well as a banking system that "continues to make mortgages" available to Canadian consumers.
But he cautioned that if unemployment rises in Canada, there will be a larger fallout for the domestic housing market.
"Anyway you slice it, if you don't have a job, you can't get a mortgage and you can't buy a house," Gregory said.
By ERIC BEAUCHESNE, Canwest News Service
The Canadian housing market is cooling but is not facing a U.S. style meltdown, builders here say.
"A few commentators have drawn a parallel between the Canadian housing situation and the extreme difficulties in the housing market in the United States," the Canadian Homebuilders said in a report yesterday that dismisses such comparisons.
"There is absolutely no merit in drawing such a parallel," it said in the report, which contends the pace of housing construction in Canada is merely returning to a level that is consistent with underlying housing requirements following the boom of recent years.
"The housing situation in Canada is totally different from that of the U.S.," it said. "There will be some price moderation in some markets, but there is nothing to suggest that housing markets in Canada are vulnerable to the oversupplies and plunging prices that characterize many markets in the U.S.
"We did not experience the same housing boom conditions 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," it said.
The moderation of house prices will improve affordability and create opportunities for first-time home buyers, it said. Meanwhile, existing homeowners have little to fear.
"For those selling a home and buying another, the moderation of housing prices should be relative - there should be no significant gain or loss from the easing of house prices," it said
"For those who have owned a home for some period, their equity will be substantial, given the rising prices of the past few years," it said.
"For those who purchased their home recently, there should be few worries about a modest temporary reduction in value."
To support its argument that the Canadian housing market is not going the way of the U.S. market, it cited a variety of differences:
Unlike in the U.S., underwriting standards for qualifying 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 U.S.
Most mortgages in Canada are held by their original lender, not packaged and sold to third parties as is typical in the U.S., and consequently, Canadian mortgage lenders have a vested interest in ensuring that their mortgage borrowers are creditworthy and not likely to default.
Only 0.3 per cent of Canadian mortgages are in arrears vs. 4.5 per cent in the U.S. and what even before the start of the U.S. housing meltdown two years ago was two per cent.
Canadians tend to pay down mortgages faster than in the U.S., where mortgage interest is deductible from taxes, which encourages U.S. homeowners to take equity out of their homes to finance other spending, a difference that is reflected in the fact that in Canada mortgage debt accounts for just over 30 per cent of the value of homes, compared with 55 per cent in the U.S.
In Canada, home prices are down 9.8 per cent from a year earlier, compared with an 18-per-cent drop in the U.S. from what were already deeply depressed prices a year ago, the latest real estate industry figures show.
Most analysts here agree that Canada should avoid a U.S. style housing market meltdown.
Michael Gregory, senior economist with BMO Capital Markets, said recently that "we won't even come close'' to what is happening in the U.S. thanks to stronger employment and income growth here as well as a banking system that "continues to make mortgages" available to Canadian consumers.
But he cautioned that if unemployment rises in Canada, there will be a larger fallout for the domestic housing market.
"Anyway you slice it, if you don't have a job, you can't get a mortgage and you can't buy a house," Gregory said.
Labels: Housing Market
2 Comments:
At 7:54 AM ,
Mike Leibel said...
Neil Says: “But a lot of that is paper profits. You don't lose it unless you are selling.”
Many people have been hearing this statement for so long without giving it thought, that they actually believe it. Be assured that home owners have already lost their equity regardless of whether they have sold or not. Just because a homeowner doesn't crystallize their gains/losses until the sale is no reason to think that they are somehow sitting pretty is ludicrous. It can’t be dismissed as a paper loss. That is trying to ice over the facts. We have all lost equity already, from the highs a year ago. If one were to sell today they couldn't get what you might have a year ago. They've already lost their equity just as surely as the guy in the casino believes that the chips he lost at the blackjack table is just a "paper loss" because he hasn’t yet cashed out.
Consumers should never postpone a move believing it to be true. If you are postponing a relocation because you believe that if you sell you'll lose money -- don't! Remember, the home you'll be buying has also come down so you're really on a level playing field. Either way, be assured that a small part of your often substantial equity has already evaporated.
At 8:01 AM ,
Mike Leibel said...
Sorry, this comment was posted to wrong article. Please disregard. It is reposted elsewhere.
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