Lending standards preventing U.S.-style real estate market collapse

Stricter lending standards preventing U.S.-style real estate market collapse: C.D. Howe Institute

The chance of a U.S.-style housing market collapse is highly unlikely given stricter lending standards in Canada, according to a C.D. Howe Institute paper released Tuesday.

The report noted mortgage delinquencies in Canada have not risen to nearly the same levels in the U.S., in part because the sub-prime mortgage market, the main culprit to the U.S. housing recession, was very small in Canada. It comprised about 5% of mortgages in 2006 compared with 22% in the U.S.

It noted, “While mortgage delinquencies began to climb before the recession in the U.S., they only began to rise in Canada after the economic slowdown began. Moreover, the decline in Canadian housing prices between August 2008 and April 2009 did not result in a large increase in mortgage delinquencies.

Cameron Muir, chief economist for the B.C. Real Estate Association, told BIV that comparisons between the U.S. and Canadian markets is “really a comparison of apples and oranges” and any major U.S.-style correction in the B.C. housing market is unlikely.

Mortgage delinquencies in the U.S., for example, range between 6% and 7%, but have remained below 0.5% of all mortgages in B.C. over the past couple of years, during the worst of the economic downturn.

“When you look at the level of arrears today, they were much lower than they were in the late '90s when the economy in B.C. was in the doldrums. That suggests household financial conditions are relatively strong today.”

While he noted low interest rates have increased the debt-to-income ratios of many Canadians, and is something to keep an eye on from a risk perspective, “in terms of any kind of impending doom for the consumer in the marketplace, that certainly isn’t in the cards right now.”

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