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Mortgage Broker News | 22 Feb 2017, 08:15 AM Agree 0
Canada joins Greece and Singapore in a new Fitch Ratings list of “unsustainable” housing markets
  • MBS Quant | 23 Feb 2017, 11:33 AM Agree 0
    There are three potential triggers to precipitate a crash: One is efforts by foreign governments, particularly China, to limit outflows. These efforts are unlikely to have a serious impact, as wealthy individuals will likely retain avenues for moving funds, particularly through corporate accounts. The second trigger is policy change in Canada that makes foreign buying less attractive, such as the 15% tax in BC where the downward impact on prices was almost immediate. Other such policy changes could include increased transparency on ownership, making the offshoring of international money in Canadian real estate a riskier maneuver. The third trigger is interest rates. Canada has a fairly short duration mortgage market, where most borrowers have to renegotiate a mortgage after 5 years (folks, look closely, it is NOT automatic that your bank will re-mortgage your house). Compared to the US where many borrowers have 30-year mortgages and much less debt, Canadian borrowers are in a particularly vulnerable position relative to US borrowers as interest rates increase. Given the inflationary policies of the new US President, significantly higher rates are not an unreasonable possibility.

    My sense is that triggers #2 and #3 combined in significant but realistic amounts would cause a crash in Toronto and Vancouver, and to some extent the spill over areas from those places, that would dwarf the US crash both in terms of severity and duration. Prices in those areas could easily fall 50% within 6-12 months and remain depressed for a decade or more. The rest of Canada would be collateral damage, but not nearly to the same extent, and in some places remain relatively unaffected.
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