Why Canada’s Real Estate Market is No Pre-crisis America

Although it may seem a little too familiar, the crash of Home Capital Inc. does not indicate that Canada is headed into the same path we saw our U.S. neighbours take in 2008 and 2009. Although there are some similarities that can be drawn, for instance the level of debt we are seeing and home prices skyrocketing, at the same time, “when you understand what really led to the severity of the financial stress in the U.S., it was related to a number of factors that are not present in Canada”.

“Home Capital could never be Canada’s Leman Moment” simply because the circumstances are entirely different. During a time where American lenders would hand out loans to anybody that could read or walk, and the financial engineering that took place in Wall Street, it was no wonder the U.S. took such a big hit. Meanwhile in Canada, the requirements are less lax, and Canadians have to go through a more rigorous process to prove they can afford a home. Another important differentiation is that “unlike the United States before the crisis, the portfolios and business lines of large banks are well diversified, and stress tests suggest that banks have adequate capital and liquidity buffers to weather a large house price correction,” While the comparisons between Canada and the U.S. are not so out of place, it is not as severe as some are making it out to be.  An enormous effort would have to take place to "topple Canada’s banks, and the country’s housing bubbles are too concentrated to trigger a national calamity”.

The similarities do exist, and it wouldn’t be right to ignore them, however the degree to which emphasis is placed on the similarities is simply misdirected.

Taken from an article written by Kevin Carmichael from Maclean’s.

http://www.macleans.ca/economy/economicanalysis/a-national-real-estate-crash-isnt-in-the-cards/