Analyst predicts Canadian housing crash coming

Analyst predicts Canadian housing crash coming

Analyst predicts Canadian housing crash coming

 

Canada’s housing boom will not make a soft landing, predicts one market analyst, and expects “significant collateral damage” is coming.
 
Ben Rabidoux, an analyst with Hanson Advisor, says that the differences between the Canadian and U.S. housing markets have been “dramatically overstated”, stating that it will be “very difficult for this to unwind painlessly” for those pulling the policy levers in Ottawa.
 
“If you look at how levered our economy and our labour market is to this current housing boom,” Rabidoux said in a recent interview on BNN, “my position has been that it will be very difficult for policymakers to unwind this boom without significant collateral damage.
 
“If we look at housing-related industries as a percentage of GDP, we’re well above where the U.S. peaked.”
 
Rabidoux says that Canada’s housing strength is not sustainable, especially when compared to other developed economies where in the wake of the financial crisis real estate markets suffered double-digit sales and price declines.
 
“I work very closely with a number of front-line lenders and mortgages brokers and the consensus is mortgage fraud is ‘widespread and under-reported,’” says Rabidoux. “It's difficult to make the case that we have run-up our debt levels here in Canada to comparable levels in the U.S., but we've only ever done it lending to rock solid borrowers and they did it by lending it to anyone....”
 
His remarks come on the heels of reports that Vijai Mohan, founder and portfolio manager of Hyphen Fund Management, admitted that nearly his entire portfolio is set up to profit on a downturn in Canadian housing market.
 
Mohan also has gone on the record stating that said that the mortgage default insurance bought by many banks may not hold as regulators take a closer look at underwriting practices. Mohan called this a "put-back" – something that became common in the wake of the housing boom in the U.S. after many lenders were alleged to have pursued unethical or fraudulent lending practices.
 
“The problem with the thinking about the transference of risk here is it all depends upon whether or not mortgage debt was initiated in a proper and complete fashion,” said Mohan, “and our research has uncovered that could be put-back risk in fact for Canadian financial institutions as a result of missteps in the underwriting process.”
 
Canada's housing market has shown signs of weakness in recent months, as the April numbers from CMHC show that new housing starts have slipped from March to 174,858 from 181,146. The peak of 228,942 reached in the second quarter of 2012 is a far cry from the 175,191 new starts in the first quarter of 2013 – a drop of more than 23 per cent.
13 Comments
  • David Larock 2013-05-24 8:21:26 AM
    “I work very closely with a number of front-line lenders and mortgages brokers and the consensus is mortgage fraud is ‘widespread and under-reported,’” says Rabidoux.

    That's an outrageous claim that should be substantiated with some sort of proof.

    How about some examples Ben? Surprised to see this type of hyperbole coming from you.
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  • Gale Tracey AMP 2013-05-24 8:24:06 AM
    Thank you! That was the headline I wanted to read on Friday morning from Mortgage Broker News! More fear mongering from the media from "One Market Analyst"!
    Post a reply
  • Lawrence Kobescak 2013-05-24 8:26:32 AM
    Sounds like Mr. Rabidoux believes that when housing sales slow, the average Canadian decides to move to a tent or under a bridge. Yes, low interest rates has driven home sales over the last decade but the vacancy rate in all major cities in Canada is still very low. This means there is a true demand for housing, as indicated by those renting. Unless something significant happens (dramatic rising interest rates) or significant job losses the housing values will remain stable. You know what they say, those who can do, those who can't, become 'analysts'.
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