A new report from the Chartered Professional Accountants of Canada says a Canadian housing collapse is unlikely.
According to the CPA, the Canadian housing market isn’t as similar to the 2008-09 American housing market as many think.
“Beyond prices and debt levels, Canada shares far fewer similarities with the U.S. than you might think. This becomes very apparent when you look at just one measure; credit quality,” Francis Fong, CPA Canada’s Chief Economist said in a statement.
Despite issues with housing affordability and household debt, the Canadian housing market seems to be steady. The American housing collapse was a result of more than high household debt. Contributing factors also included lax policies and high-risk mortgages.
In Canada, high interest rates and stricter policies have improved the quality of mortgages issued.
According to the CMHC, the number of borrowers in good credit standing has increased from 66 per cent in 2002 to 88 per cent in 2017. And, the amount of low-credit-quality borrowers has decreased from 17 per cent to three per cent in the same time frame.
But that doesn’t mean Canadians are in the clear. Last week the Bank of Canada stated the Canadian Housing Market was still vulnerable.
With tighter homebuying policies, more and more Canadians are turning to non-regulated lenders. Though the Bank of Canada has found economies with large un-regulated sectors tend to experience smaller downturns after financial turbulence, it should be noted that funding from unstable sources can dry up quickly in the event of a market crash.
“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.”