With American home ownership having dropped to 1990 levels, Canadians should take pride in knowing they can still realize their own property dreams.
And according to Canada Mortgage & Housing Corporation, that dream has been maintained by prudent banking practices and a reluctance to embrace the U.S.-style subprime market.
“Approximately 70 per cent of Canadian mortgages are insured. In the U.S., during the years preceding the economic downturn in 2008, about 15 per cent of mortgages were insured,” says CMHC’s Karine LeBlanc. “Due to prudent underwriting standards and the high quality of mortgage lending, the rate of mortgage arrears in Canada is less than one half of one per cent.”
U.S. homeownership reached a record high of 69 per cent in 2004, before the housing bubble inflated and then burst – removing more than 7 million Americans from that group.
Today U.S. homeownership is back at 65 per cent – levels not seen since the early 1990s, with all indicators pointing to another point drop to 64 per cent.
U.S. lawmakers are under public pressure to ensure new mortgage standards designed to prevent another crash be made flexible enough so families can benefit from the recovery. CMHC takes pride in the standards in place here that allowed Canadians to not feel the impact of the U.S. housing crisis – a lesson CMHC says was learned during the early 1990s.
“While this is often attributed to a traditionally conservative business culture in Canada, an important factor here is the difficult lessons learned from previous banking problems. An example is the economic difficulties in the early 1990s, which included a significant housing downturn,” states CMHC in its recent report, ‘Comparing Canada and U.S. Housing Finance Systems’. “Canadian banks therefore entered the recent period of financial stress with better risk-management practices, focused on limiting credit losses, than in previous episodes. This helped to limit their exposure to some potentially riskier sectors and products. For example, subprime mortgages.”
One proposal U.S. regulators are proposing is a softened version of a rule requiring banks to keep a stake in risky mortgages they securitize. It was low down-payments loans with exotic adjustable rate mortgages that is credited with fuelling the housing bubble, taking down the U.S. financial sector.