When it comes to assessing the state of Canada’s housing economy, there are several factors that should be considered, according to brokers.
“I think the changes the Bank of Canada has made in the past few years have helped avoid the same fate as we saw in the United States,” James Harrison, president of Mortgages.ca told MortgageBrokerNews.ca. “They’re a lot stricter these days and buyers have to qualify at the posted interest rate.”
According to many industry professionals, the American housing crisis was due, in large part, to relaxed underwriting; something the Canadian government has aggressively clamped down on.
MacBeth, a portfolio manager with Richardson GMP and author of When the Bubble Bursts: Surviving the Canadian Real Estate Crash,
believes the Canadian real estate market is more at risk than the United States’ was prior to the recession.
"Our bubble is bigger," Hilliard MacBeth, portfolio manager with Richardson GMP and author of When the Bubble Bursts: Surviving the Canadian Real Estate Crash, told the CBC. "At seven per cent, our exposure as a percentage of total economic activity is higher, and then we've got this nationwide obsession with buying homes and condos."
And according to MacBeth, U.S. investment in housing prior to its crash was six per cent of the total GDP.
However, as industry professionals have pointed out, there are more factors to consider than just housing as a percentage of GDP.
The Canadian government has been very active in regulating the mortgage market, making changes that create higher barriers for many Canadians to buy a home.
Most recently, CMHC announced that effective June 1, the insurance premium will rise 45 basis points to 3.6 per cent for those mortgages with less than a 10 per cent down payment. Genworth
quickly matched the price hike.
Prior to that, the Crown Corporation hiked its premiums from 2.75 per cent to 3.15 per cent last year. And since 2008 the Canadian government has implemented a number of regulation changes, including decreasing the maximum amortization period to 25 year and lowering the maximum LTV to 80 per cent.
This isn’t the first time MacBeth’s views have drawn criticism. In March, MacBeth explained
to MortgageBrokerNews.ca why he believes the housing market is overvalued by up to 50 per cent.