The pitched pace of home price growth nationwide in recent quarters may be reminiscent of pre-2008 conditions in the U.S., but a recent study conducted by Chartered Professional Accountants of Canada (CPA Canada) indicated that housing market fundamentals north of the border are more resilient than one might expect.
Among the leading triggers of the U.S. meltdown was the high volume of subprime mortgages issued to borrowers with low credit quality who couldn't afford to repay debt.
In stark contrast, data from the Canadian Mortgage and Housing Corporation showed that the proportion of high-credit-quality borrowers has swelled from 66% in 2002 to 88% in 2017. During the same time frame, the share of low-credit-quality consumers declined from 17% to just 3%.
“Beyond prices and debt levels, Canada shares far fewer similarities with the U.S. than you might think. This becomes very apparent when you look at just one measure: credit quality,” CPA Canada chief economist Francis Fong stated.
“The situation in Canada is likely not a bubble in imminent danger of deflation; in fact, housing prices may reflect the true value of living space in Canada and in some markets increased household debt may be the new price for real estate.”
Read more: Economic indicators point to further rate hikes – CMHC
CPA emphasized that this does not mean that the Canadian housing sector is risk-free, but that using the U.S. example to predict (and preemptively address) any wide-reaching problem would be futile since the two markets operate under entirely different conditions.
Among Canada’s danger spots is the sharp increase in the number of consumers choosing non-regulated lenders. CPA warned that these borrowers are far less protected than those who borrow from regulated sources such as banks. At the same time, a measure of relief can be found in the fact that any issues arising from this would be less widespread than the U.S crisis.
“Our cities frequently are listed among the best places to live and work in the world and, compared to their peer cities abroad, they are not among the most expensive. We may simply be dealing with the law of supply and demand, so affordability could continue to be a challenge for the foreseeable future,” Fong noted.
Rate hikes, regulatory changes moderating mortgage risk – BoC
Canada’s housing market gets off the hook—for now