Exclusive: Analyst explains bold prediction

Exclusive: Analyst explains bold prediction

Exclusive: Analyst explains bold prediction

“An increase of that amount in such a short time is very rare but when it has happened in other countries, it’s always been followed by a financial crisis, as the borrowing is used to buy illiquid assets such as real estate,” he said.

MacBeth believes three quarters of Canada’s $1.8 trillion in household debt is backed by government insurance which, he says, protects the lender only and not the taxpayer or the economy.

As for which areas are most at risk, MacBeth believes Calgary will be the first to correct, with Edmonton, Vancouver and Toronto also at risk.

“The surplus of condos in Toronto that is developing is dangerous too, as an oversupply of units could mean that condos -- which are difficult to sell except when brand new -- will be dumped on to the market by investors who have borrowed most of the money,” he said. “Or by lenders who have foreclosed on the properties.”
 

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16 Comments
  • James Robinson 2015-03-20 11:47:28 AM
    The ratio between household income and monthly carrying cost of a home would seem to be far more relevant than income to house prices. People do not buy a house for $500k, they buy a house for $2500 a month. It would take a big increase in interest rates to cause carrying costs to rise dramatically and with government being both the biggest borrowers and in charge of setting interest rates, my money is on low rates for a lot longer than anyone thinks......just look south to the Fed decision this week.
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  • MtgBrker 2015-03-20 11:50:55 AM
    ^^ So hypothetically if the overnight rate drops to 0% in a 6 month timeframe and your payment is still $2500, you would be ok with paying $600k for that house?
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  • James Robinson 2015-03-20 11:58:02 AM
    That is certainly how the market behaves. I bought a house in 1990 for $340k and the mortgage payment was about $3300 monthly at 13.5%. Today, the exact same house would sell for $1mm and with 20% down the payment is almost the same.
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