Is Canada talking otself into a housing crisis

print article
reprint articles
bookmark this site

Careful What You Say


Larry MacDonald Special to The Globe and Mail
Jan 25, 2013 - 8:47:53 AM
RSS RSS?

Is Canada talking itself into a housing crisis?

Little was heard of housing bubbles in Canada up to about a year ago. Now, predictions of crashes are on the front cover of   Maclean’s  and other publications. One might wonder if we are talking ourselves into a housing miasma, even though the fundamentals don’t point to one.


Consider affordability. The Bank of Canada’s housing affordability index shows that newly built standard houses are as affordable as 10 years ago. And the Royal Bank of Canada’s affordability indexes for existing housing only “exceed their long-term averages modestly, although the national figures are exaggerated by extremely poor affordability in Vancouver.”

Moreover, credible analysts don’t see a U.S.-style crash. Professor Robert Shiller told CBC News in September that Canada should be spared because its banks have low subprime exposure. And Gluskin Sheff economist David Rosenberg wrote in a November note “that the U.S. plunge five years ago followed years of credit-tightening moves… anyone think that [the Bank of Canada] is going to raise interest rates 450 basis points with inflation barely above 1 per cent?”

Yet, some media sources are now painting a dire prognosis for Canadian housing. It brings to mind the 2012 paper, “What Have They Been Thinking? Home Buyer Behavior in Hot and Cold Markets,” written by Mr. Shiller and co-authors, Karl E. Case and Anne Thompson.

The paper looks at press coverage leading up to the U.S. housing collapse and documents the increasing frequency of articles depicting U.S. housing as a bubble. June of 2005 was particularly busy, with cover stories in the Economist, Barron’s,  and   Time Magazine.

Mr. Shiller and co-authors argue the prominence of the bubble theme produced “a turning point in public thinking” that led to prices turning down, beginning in 2006. A similar point was made by Mr. Shiller in a 2006 paper, in which he wrote: “there are reasons to suspect that the price changes … are related to public swings in opinions rather than fundamentals.”

Could Canada similarly be talking itself into a housing crash (possibly followed by a financial crisis and years of stagnation)? Or will the fundamentals usher in the soft landing that the federal government is trying to achieve through tighter mortgage rules? Messrs. Shiller and Rosenberg believe the fundamentals will win because the Canadian setting is more supportive. Let’s hope so, if only so that Canadians are spared the trauma Americans have experienced.

READERS:  Do you see signs of a crash? Or do you just hear the talk and worry?

http://http://www.theglobeandmail.com/globe-investor/investor-community/trading-shots/is-canada-talking-itself-into-a-housing-crisis/article7589164/


LendingMax - Mortgage solutions for Canadians.

 


Home Purchase

Mortgage rates are the lowest they have been in years. We'll find you the best mortgage to help you achieve your goals.

 
image

 

Mortgage for Self-Employed

You don't need to feel second rate to the banks when it comes to being self-employed.  Let one of our mortgage specialist get you the mortgage that best fits your needs.

 
image

 

LendingMax - News & Rate Advisor News & Rate Advisor
To sign up for our monthly news letter, please fill in the fields below.

First Name

Last Name

Email
Email

 

 

Each Verico broker is an independent owner/operator.

Home Apply Now Calculator Client Login Privacy Security Faq Link to Us Stats About Legal Terms of Use

Copyright 2017 LendingMax All Rights Reserved.
*some restrictions may apply

Powered by GoMAX Solutions.