The U.S. Housing Crisis: Why it Won't Happen Here. These are some key points.
- A very small percentage of mortgages in Canada are subprime
- Canadian 'subprime' is similar in risk to US 'Alternative A'
- In the US, those unable to have 20% down had little alternative but to turn to subprime lenders.
- In Canada, mortgage insurance is mandatory for those unable to meet the 20% downpayment requirement.
- Because of Mortgage insurance, borrowers in Canada who are unable to meet the 20% downpayment requirement have access to prime market lenders rather than turning to subprime lenders.
- Subprime lenders in the US used borrower evaluation criterea that has been characterized as suspect.
- Canadian banks tend to be more conservative in the type and variety of products they offer.
Other key facts:
- Maximum Loan to Value in the US 125%!!! (hence the stories of the house + new furniture + SUV) Canada had just started down the 100% Loan to Value path but it really never took off.
- Interest only mortgages readily available in the US.
- Stated income mortgages accunted for 10% in Canada and 40% in the US. (Literally a letter signed by the borrower stating how much income they made!)
- Teaser rates were common in the US but very few lenders practiced this in Canada.
The big one "Exploding Adjustible Rate Mortgages' This is a product where the first 2-3 years carried extremely low rates only to jump to 2-3 times that amount when the intro period ended. This 'explosion' was available to homeowners who put 0% or less down. Suddenly faced with a mortgage they could not afford to pay for, falling house prices, and poor job prospects...they simply walked away from the home.
Since most Canadians put 5% or more down, even in a pinch and facing job loss there is enough equity in our homes to merit fighting to ensure payments are made. Or if payments cannot be made, a sale can be initiated to sell the house, pay down debt and rent, with little or no financial loss.
Course: The U.S. Housing Crisis: Why it Won't Happen Here
Subject Expert/Author: Written with the assistance of Instructor Aron Gottesman Ph.D., M.B.A., B.A
Haha. Guess what buddy. It's happening in Canada! My advice is to protect your assets by:
ReplyDelete1.) Selling.
2.) Short selling the exchanges.
Your numbers are suspect to say the least. Sounds like a favorable position for Canada to be in, however the fact is that Oil just hit 37/barrel and will most likely tumble to the mid 20's, real estate is dropping like a falling knife, and the banks in Canada are trying to increase capital by selling stock in possibly the worst time since the great depression.
Goodbye to either Scotiabank or CIBC.
Mark
The numbers are from a course I recently took - not mine. The numbers are fact, whether the result will be is yet to be seen. The Real Estate Market is not falling like a knife. There are certain areas of the Country that have seen dramatic drops, but for the most part - so far - it has been soft landing. I suppose if someone recently bought to flip they would experience losses. Otherwise in the GTA well priced homes are selling and those who are clinging onto Spring/Summer 2008 prices sit.
ReplyDeleteI am not certain if this defines you but you're not one of those people who have told me the Real Estate market is going to drop....since 2001? Just kidding but lets face it - it exists.
In my opinion gambling with the exchange and jumping ship when it is not absolutely necessary are the absolutely worst things you can do.
If the Real Estate market is plummeting like you say, and with Interest Rates at an all time low, I would say once you Sell Sell Sell out of the exchange buy buy buy real estate!
One of the best pieces of advice with regards to the investing is simple, if you don't understand exactly what you are investing in don't do it. Most people don't understand what 'selling short' is.