The Canadian housing bubble will never blow up. There’s simply too much “plankton” in the water. It keeps the “food chain” healthy and offers ample nourishment for the “big wales and sharks” and shorting the Canadian housing bubble is useless.
So believes Stuart Levings, CEO of Canada’s largest mortgage insurer, Genworth MI Canada.
Why so? Because, he says:
1. Canada’s immigration policy brings buyers into the pipeline (250,000 immigrants per year) who are great future first-time homebuyers that become plankton.
2. the federal government has put in place shorter amortizations and higher down payments, which has pushed subprime borrowers into the shadow banking sector of non-federally regulated lenders, which according to Levings, accounts for only 2% to 3% making them “like the flea on the tail of the dog” – too minuscule to matter.
3. the average credit scores of Genworth customers are a high 737 points and, as such, first-time homebuyers have been squeezed down into a small group who are qualified, good-quality borrowers.
4. there won’t be forced sales – a herd mentality – like there were in the U.S. during their housing bust (where owners, when they realized their homes were worth less than the mortgage, simply walked away) because in Canada all mortgages are full-recourse and, therefore, all borrowers are personally liable.
5. and, finally, low interest rates keep the plankton alive.
The pros and cons of his above point of view are analyzed in this excellent article* by Wolf Richer (wolfstreet.com) entitled Canadian Mortgage Insurer Tells US Hedge Funds Why Canada’s Housing Bubble Is Immortal.
Also read the following articles from the munKNEE Vault:
The real estate sector in Canada is in a bubble that could burst at any time according to the IMF, Deutsch Bank, the Bank of Canada and The Economist.
Canada’s housing bubble has been a sight to behold. Home prices only dipped 8% when the US housing market crashed. Then it re-soared. Now, across the country, home prices are 26% higher than they were at the already crazy peak in 2008. In Toronto, they’re 42% higher! There is a major drawback Canada’s housing bubble beyond the fact that it will eventually crash with terrible consequences.
The Canadian housing market is deep into bubble territory. We all know that bubbles can go on for longer than most people think but with the crash in oil prices and people fully believing their own hype, the market is set up for a big fall from grace. Canadian households are deep into debt and make American households look like penny pinchers. Here are five charts showing that the implosion in Canada’s housing market is inevitable.
Over the last 14 years, house prices in Canada have increased by 150%, twice as fast as in the U.S…[and] far outpacing household incomes. Any increase in interest rates would prick the bubble, and its implosion would trigger all sorts of mayhem to the point that the Canadian government has expressed concerned that such an event would be a significant risk to the “stability of the financial system”.
The most recent S&P/Case-Shiller home price numbers…[show a] strong month-over-month basis, with 19 of 20 cities tracked posting gains. New York was the only city to see a month-over-month decline, while San Francisco posted the biggest gain at 3.04%. The composite 10-city and 20-city indices gained roughly 0.80% month-over-month, and they gained roughly 5% year-over-year.
Most people seem to think owning a house is a great “investment” but, in actual fact, when you look at the numbers closely, such an acquisition is anything but. Let me explain with supporting evidence.
A recent Gallup survey on expected future returns of asset prices shows that most Americans still think that owning a home is the best way to generate a high return in the future. Nothing could be further from the truth! It just shows how totally out of touch with reality the average American is.
Canada’s housing market is the most expensive in the world – 60% overvalued by historical standards – and one simple reason explains it.
The Canadian housing market is headed for a significant bust, in my view. It’s going to be a repeat of the 2008 mortgage bubble deflation. Only it’s happening to the north. People will lose a lot of money but those who understand and are properly positioned may gain fortunes.
All of this talk about a “bright future” for real estate is just a bunch of nonsense. The yield on 10-year U.S. Treasuries is starting to rise aggressively again and, because mortgage rates tend to follow such increases, mortgage rates are going up. As monthly payments go up less people will be able to afford to buy homes at current prices and this will force home prices down. As such, another great real estate crash is inevitable. Let me explain further.