High levels of household debt and the sky-high home prices in some Canadian markets have led some commentators to make comparisons with the US housing crash which sparked the global financial crisis of a decade ago.
But Chartered Professional Accountants Canada says that a Canadian housing crash is unlikely because conditions are not the same as in the US in 2008.
"Beyond prices and debt levels, Canada shares far fewer similarities with the US than you might think. This becomes very apparent when you look at just one measure; credit quality," explains Francis Fong, CPA Canada's Chief Economist and author of the study: The Real Story Behind Housing and Household Debt in Canada: Is There Really a Risk?
Fong highlights that the US housing market in 2008 suffered from lax regulation and the prevalence of subprime mortgages that many homeowners could simply not afford.
Although Canada’s housing market is not immune to risks, the quality of credit – CMHC says 88% of borrowers had high credit quality in 2017 compared to just 3% low quality – makes a US-style crash unlikely.
Rise in unregulated lenders
Fong’s report does point to a “sharp rise” in the use of unregulated mortgage lenders in Canada; this has been exacerbated by the tighter lending rules introduced at the start of 2018.
However, even with this increase Fong says that the impact of any failures by these lenders would be less far-reaching that those in the US during the last bust.
"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," says Fong. "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."
