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Old Posted Apr 7, 2012, 1:33 AM
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freeweed freeweed is offline
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Join Date: Sep 2006
Location: Dynamic City, Alberta
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Originally Posted by whatnext View Post
Recent issue of Macleans had an interesting article on Canada's bubble. Some of the parallels to the US market circa 2005 are scary.

Time to Panic About the Housing Market
And the differences are much larger, and important in understanding what caused the housing collapse in the US. Things that happened down there that do not exist in Canada:
  • Predatory lending practices
  • 40-45-50+ year mortgages
  • 0% down-payments
  • Interest-only mortgages
  • Never checking if people can actually pay their mortgage payments
  • Lenders not financially linked to homeowners, encouraging the above
  • Banks going insolvent when as few as 1% of their clients go into foreclosure
  • Insolvent banks spreading the lack of credit to each other, thereby guaranteeing more homeowners would go into foreclosure the instant anything averse happened to them

Etc, etc, etc.

The only parallel that exists is that housing prices are up, and interest rates are low. However, the US market completely imploded with no real change in interest rates, which is the doom-and-gloom predicted in this article. In short, there really isn't any parallel, certainly not a very scary one. It's more of a co-incidence than anything. We don't have subprimes, we don't have CDOs, we don't have CDSs. At least nowhere near the extent the US financial industry was allowed to get into.

A housing bubble bursting is certainly possible in Toronto and Vancouver, but the rest of the country really isn't seeing it. House prices in every other major city are well in line with incomes and most people can easily afford a hike in interest rates. And at any rate, a collapse in those 2 cities would have little to nothing to do with what happened in the US in 2008. Until I hear of someone earning $30,000 a year pumping gas qualifying for a mortgage on a $500,000 house, I'm not exactly going to panic.
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