With much discussion over the past several months about the soundness of the Canadian housing market, UrbanToronto is pleased to share a quick and informative infographic courtesy of RateHub.ca that demonstrates the similarities between the American and Canadian housing markets while also outlining the regulatory mechanisms that shield our domestic market from a housing crash.
With the evaporation of remarkable amounts of capital, the sub-prime mortgage crisis had a devastating effect on the health of the American economy. Fuelled by anemic income growth, high housing prices, low interest rates and an alarmingly high debt-to-income ratio many Americans households became unable to meet their minimum monthly payments on mortgages, triggering a cascade of defaults. Acutely aware of the damage caused by the sub-prime crisis in the United States, observers have been growing concerned over the emergence of the same conditions outlined above in the Canadian market.
There are, however, 4 shields outlined by RateHub that will allow for a softer and safer market correction than seen in the United States. They are as follows:
- Stricter Underwriting Standards. Drastically lower levels of sub-prime mortgages are stated as income in Canada, there is a minimum required for down payments and a standard set for maximum affordability.
- Legislative Differences. Mortgage interest is not tax deductible and lenders can pursue defaulting borrowers for full reimbursement.
- Less-Risky Product Types. Lack of “teaser” rates, an absence of interest only loans and a substantially lower number of sub-prime mortgages in Canada
- Mortgage-back Securities. Lower percentage of securitization, loans backs by the Canadian Housing Trust (CMHC) and higher quality mortgages.
To get the full picture, check out the useful graphic below: