Both corporations and households are more indebted now than they were in 1990, the last time the Canadian housing bubble was said to have popped due to a recession. While debt levels in Canada are far higher today than they were 30 years ago, interest rates are also far lower. Conventional rate on a five-year mortgage was 13.35% in 1990, which would give borrowers far less breathing room in the case of financial disruption. And lest we forget, the recession triggered by COVID-19, deemed “the deepest but shortest recession in history”, is technically already over.
Even taking into account the inflated prices homeowners are paying now compared to 1990, few experts see a wave of delinquencies, defaults, or foreclosures hitting the Canadian market in 2021.
“Generally speaking, we’ve seen a flat pattern coming out of mortgage deferrals in terms of consumer delinquency overall,” Matt Fabian of TransUnion told MBN. “Certainly, with mortgages, we’re actually seeing a little bit of a drop in delinquency rates.”
But to argue that are Hilliard MacBeth’s (author of When the Bubble Bursts: Surviving the Canadian Real Estate Crash), comments on the condo market for confirmation that trouble is already brewing.
“‘It’s showing up in the condo market first,” it is stated. “There’s a huge surplus in the condo market, both on condos for rent and condos for sale. And then related to that, there’s a huge number of new purpose-built rentals either on the market or are about to hit the market.’”
However it could be noted that “the condo market” and the “detached market” are entirely separate entities. The price of one does not directly impact the price of the other. Sure, if home prices grow too quickly buyers will be forced to start purchasing condos, a trend that will drive condo prices up; but the phenomenon doesn’t work the other way. If condo prices fall, that has no impact on the prices of other housing types. Has anyone seen evidence that Canada’s falling condo prices slowed the growth of townhouse, detached, or semi-detached prices in 2020?
It’s also important to keep in mind that local real estate markets in Canada are insulated by geography. Falling home prices in Alberta, for instance, will not affect prices in any other province. Why would they?
A nationwide housing crash would require a financial calamity – think 2008 in the US – that threatens the livelihoods (and mortgages) of many of the country’s homeowners, forcing tens of thousands of them spread across every major Canadian real estate market to sell their homes simultaneously, thereby dragging home values down in each one. Those values would then have to be brought low enough that homeowners holding on to their properties would see the entirety of their equity wiped out and be forced to sell into a tanking market. That’s not likely to happen in communities where home values have risen by 5-10% annually over the last several years, and there is no shortage of those.
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