Canadians Brace For A "Perfect Storm" Brewing In Housing Market

We've spent a fair amount of time discussing Canada's housing market over the past several months as Chinese money laundering operations have sprouted up bubbles all over the place.  Here's a modest sampling of our recent work:

But, as the Globe and Mail notes today, there could very well be a "perfect storm" brewing in several Canadian housing markets as the result of extreme pricing bubbles, over-indebted consumers, a major tightening of mortgage rules and the prospect of rising rates.

On the regulatory front, Canada's Office of the Superintendent of Financial Institutions (OSFI), is considering new rules that would require lenders to effectively "stress-test" borrowers to confirm they would be in compliance with credit metrics even if rates were to rise 200 bps.  From a practical standpoint, such a move would immediately remove roughly 20% of the average Canadian's home buying power.

Canada’s banking regulator (OSFI) is proposing that anyone who gets a mortgage at a bank or bank-funded lender prove they can afford a rate that is at least 200-basis-points higher than their actual rate.

 

A similar debt-ratio “stress test” is already in place for folks getting a default insured mortgage, as well as most variable-rate and short-term borrowers.

 

If OSFI’s change goes through as planned, otherwise credit-worthy borrowers would qualify for roughly 18 per cent less mortgage, other things equal. This one change would have more of an impact to mortgage shoppers than any Bank of Canada rate hike in history.

Of course, with mortgage rates at multi-decade lows, they likely only have one direction to go.  Moreover, as rates rise, it will only serve to amplify the impacts of the proposed OSFI regulations noted above.

If you believe the Bank of Canada’s hints and bond market probabilities, there’s a real chance we’ll see higher floating rates as soon as next week’s rate meeting, or at its meeting in September. (Albeit, Thursday’s OSFI news could limit the BoC’s rate hike plans.)

 

As for fixed mortgage rates, they’ve already shot up on the back of a 50-basis-point surge in bond yields since June 6. RBC, Canada’s de facto leader in setting mortgage rates, hiked most of its advertised fixed rates by 20 basis points on Thursday morning. Most other lenders have done the same and it may be only the first of multiple moves.

 

All of which leads the Globe & Mail to ask 'what should Canadian consumers do now?' 

Well, luckily for our northern neighbors, we would point out that the U.S. had a similar housing bubble issue a few years back...here's a hint on what you should do next...

US

Comments

robertocarlos Fri, 07/07/2017 - 19:29 Permalink

Fuck me. I've only been wrong about the housing market for 20 freaking years. During that time it has tripled everywere and gone up ten-fold in some areas. It won't matter even if it crashes. If you didn't buy a long time ago, you're still fucked.

Handful of Dust Zer0head Fri, 07/07/2017 - 19:58 Permalink

Limp-wristed Trudoo is no different then the other pseudo-libtards. he will bail out the bankers just as Bush and Obama did in the USA, pretending to "help the poor home owners" but it's really a Banker bailout. Maybe he'll bring hank Paulson to tremble and stutter on stage to preach "the end of the world!" unless a Bailout is handed to Banks.

In reply to by Zer0head

Zer0head Fri, 07/07/2017 - 20:02 Permalink

And God looked down on Kanada and the one named Justin who pays millions of dollars to a convicted terrorist and murderer of an American soldier and He spat them out of his mouth.

tropicthunder Fri, 07/07/2017 - 20:12 Permalink

Biggest mistake I ever made in property when I had the chance to buy a 2BR/1.5BA beachfront condo in Redondo Beach back in 2004 from a friend for the outrageous price of $373,000. Guess how much that same shitbox is on the market for now? $1,255,000! I wonder if I should bought Silver or that little fuck shack on the beach. What a god damn idiot. Proof in point, real estate bubbles can just grow on and on and on and on and on......

Sector Catalyst Fri, 07/07/2017 - 20:20 Permalink

(squawk box)Paging Pitz. Paging Pitz. Please come to the chat thread to defend the legitimate Chinese investments in Canadian real estate that clearly aren't driving up the local prices and making housing difficult to attain for REAL Canadian citizens.

opport.knocks Fri, 07/07/2017 - 23:55 Permalink

There is a very high probability of a correction, see the inflation adjusted prices in the attached chart for Toronto. http://www.torontohomes-for-sale.com/account/461083ac0e597a15/pages/257…, there are also a huge number of millennials (such as my daughter) who have been priced out for almost 10 years and have saved a substantial down payment for when prices do start to correct. So I do not think there will be a sharp correction all the way to the median trend line, at least until the boomers begin to sell in a big way.The full article is here...  http://www.torontohomes-for-sale.com/Toronto-average-real-estate-proper…

cesar Sat, 07/08/2017 - 00:58 Permalink

Currently a 5-Year fixed rate mortgage (the most popular mortgage among home buyers ) can be had at a rate of about 2.5%  - if you shop around. This is the lowest rate ever in Canada's history!  So the fact that they are only now considering doing stress tests (i.e., ensuring buyer can afford payments if rates are 200bps higher) shows you how clued out they are.  This stress test should have been implemented 3-4 years ago at least.Now its time to face the consequences. Reckless Fools!  They should be in jail.

mademesmile Sat, 07/08/2017 - 01:11 Permalink

I'm part of a national realtor group. Someone posted the following today.

"Our market was like that until April now its flipped to buyers market in most areas - prices have dropped and those that sold at the market peak can't close because appraisals are coming in low or their buyers can't sell -- its crazy!"

I asked where she was working - the answer was Toronto, Canada.

The Real Tony mademesmile Mon, 07/10/2017 - 23:11 Permalink

Hardly a buyers market yet, I've been following the entire GTA market and the lowest end of the market has hardly fallen meaning the sutpid Millennials are still buying. So once the Millennials get called on their mortage and lose their properties to the bank then we'll see the large price drops and finally a buyers market. Ground zero is Mississauga and Brampton, Canada's two twin towers that will topple and burn to ashes.

In reply to by mademesmile