Analyst predicts Canadian housing crash coming

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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.
  • David Larock on 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.

  • Gale Tracey AMP on 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"!

  • Lawrence Kobescak on 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'.

  • Paul Mangion on 2013-05-24 8:39:59 AM

    I don't remember asking him for his opinion. Of course now that the news reports an opinion of one individual no one has heard from and suddenly it becomes self fulfilling. I predict good times ahead once all the bad mortgage agents drop out of this industry.

  • Kent Farnsworth Owner Meridian Simply Mortgages on 2013-05-24 8:51:16 AM

    Seems to me this someone just likes to hear himself talk. The sky is falling, The sky is falling!
    Enjoy your moment of fame Chicken Little :)

  • Kevin R on 2013-05-24 8:51:47 AM

    Well Ben, I suppose you are preaching everyone stop buying & selling homes and invest in that safehaven called stock market. & I'm sure Hanson Advisors can assist people with that. This article is a load of bunk. Try backing up these allegations before coming out with sensationalistic conclusions. Widespread mortgage fraud?? I'm in the front line & I know lots of brokers & lenders & I can tell you there is a lot of good business being done for Canadians who deserve mortgages & deserve to be home owners in this country. But it is Friday, can I get some of that stuff you've been drinking for tonight.

  • Layth Matthews, CEO RateMiser Mortgage Advisors on 2013-05-24 9:07:35 AM

    I think Lawrence has nailed it. As long as mortgage payments and rents are competitive with each other, we can't be too far off the genuine demand curve. The US housing bubble was fueled with negative equity mortgage payments, we are far from those.

    That said, our home prices have been fed by low interest rates, which are subject to international capital flows. I think the biggest near term threat to Canadian home prices is the US recovery! Forecast weakness in oil prices and a rebounding economy south of the border will put a double whammy of dropping C$ and rising mortgage rates on Canada.

  • Michael Perretta, MBA, Broker on 2013-05-24 9:21:37 AM

    Amazing how FREE SPEECH can be used as a tool to slander the real estate and mortgage brokerages!
    I would be very interested in knowing Mr Rabidoux's qualifications & experience AND some evidence to back his outrageous comments.
    I know an informed professional with 38 years experience that is a real estate & mortgage broker, professor and co-author of a finance textbook used by professors at colleges and universities...he says Mr Rabidoux is in desperate need of an can guess what kind!

  • Ed Novak, Real Estate Broker on 2013-05-24 9:40:33 AM

    First, I was going to say that there are as many opinions as there are people, but then I read further into the article. These cowboys with their asinine "predictions" are betting on a self fulfilling prophecy. Ben Rabidoux is trying to help Vijai Mohan make some money. Do they really think that we are all that dumb? Seriously? None of their "facts" make any sense. There is no wide spread fraud. There is no negative leverage. Interest rates are staying low. The economies in Canada and elsewhere are stable without any sudden changes occuring. This is all utter nonesense!

    Hold on! Did someone just accidentally reprint an article from 2-3 years ago but changed the dates? Sure seems that way. The same pundits were crying "wolf" that we will have a crash on 2012 and in 2013. Boohoo!!!

    I am so sick and tired of "experts" and their predictions. There should be a law against fortune tellers.

  • Victor Tanti, AMP on 2013-05-24 9:40:54 AM

    This guy compares Canada's housing market to the US housing market but it is so very different. Who in Canada has a NINJA mortgage? Please let me know, I have a list of people who can benefit from it. Mortgage Fraud? Really, it is that bad? I have been to CMHC seminars and they are not saying that. Then of course there is B20. This bill is like a chastity belt around the mortgage industry. If anything will slow the market down it is B20. TDS calculations are becoming much more difficult to qualify for with some lenders using 3% instead interest only payments for unsecured LOC's. If every lender follows suit with this, refinancing may be a thing of the past for many customers. Of course with First Nationals announcement to use a calculation from the limit of a secured LOC instead of the balance, even if the balance is 0, to be added to the TDS, it looks like First Nat wants out of the refinancing business all together. I don't don't recall any banks in the US tightening its belt like that before there was a crash. Canada has made changes as a result of the US housing crisis to mitigate the same scenario here, has Mr. Rabidoux considered any of this? He surely makes no mention of it from this chair.

  • Faye Drope on 2013-05-24 10:26:14 AM

    I agree Ben Rabidoux should have to substantiate his claims with some kind of example with his "widespread fraud" where? I have heard this same doom and gloom for 4 years now. I think we(lenders and brokers) are responding to the changes and the market is slowly correcting. So perhaps Ben should buy a tent.

  • Phil Fiuza on 2013-05-24 10:53:49 AM

    I struggle greatly with a publication that represents both Lenders and Brokers who can publish a statement that takes one broad brush and clearly paints it across the entire Canadian lending universe - "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," but does not then take the author of the statement to task on it.

  • Faye Drope on 2013-05-24 11:09:37 AM

    CAAMP recent survey:
    Home equity

    Average homeowner equity in Canada: 67%
    The equity ratio for owners with both mortgages and HELOCs: 49%
    The equity ratio for owners without mortgages but with HELOCs: 79%
    Percentage of homeowners in Canada who have 25% or more equity in their homes: 83%
    (about 8 million out of 9.65 million households)
    % of homeowners who have less than 10% equity: 4%
    % of mortgagors (with or without a HELOC) who have less than 10% equity: 7%
    (That's about 400,000 households. A serious housing downturn would obviously inflate this number.)

    Sounds risky to who? This is all in CAAMP's Spring Mortgage Report 2013.

    I think Ben should get off the soap box

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