The Chartered Professional Accountants of Canada conducted a study to see if Canada’s housing market shared the same fate as the United States, with regards to the 2008-09 bubble and crash.
While Canada’s housing market is at moderate risk of overvaluation and price acceleration, as per the Canada Mortgage and Housing Corporation’s latest Housing Market Assessment, it doesn’t look like we’re in for a crash similar to the big one in the U.S.
Household debt is on the rise and home prices remain unaffordable for many families across the country, but Canada’s housing market is more resilient than the 2008-09 U.S. market.
There were a few key factors that led to the crash in the U.S. that CPA doesn’t see in Canada, mainly the prevalence of subprime mortgages for low-credit quality applicants. Low-credit quality means they are less likely to be able to afford their payments.
According to the CMHC, the number of borrowers with high-credit quality increased from 66% in 2002 to 88% in 2017, and the number of low-credit quality applicants dropped from 17% to 3% during the same time period.
CPA does draw attention to the fact that there has been a spike in activity among non-regulated lenders, likely due to mortgage stress testing. There are vulnerabilities associated with non-regulated lenders - it’s common for borrowers to use one of these lenders if a big bank won’t approve them.
"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 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?
"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,” he adds. “We may simply be dealing with the law of supply and demand, so affordability could continue to be a challenge for the foreseeable future."