Posted by genieSABRE on Oct 12, 2012

Canadian Housing Market – Bubble, Bubble, Toil & Trouble

The most common mistake home buyers make is that they buy with their heart instead of their head.

Source: Hannif Highclass c/o Genie Sabre Realty Inc.
Publish:MY BLOG: Toronto Real Estate:

Allen Greenspan’s memoir — The Age of Turbulence: Adventures in the New World.

I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk. But I believed then, as now, that the benefits of broadened home ownership are worth the risk.

And then: Greenspan said in a speech that he did not believe there was a national housing bubble similar to the bubble in the stock market. But he said there was “froth” in housing and he called the pace of housing price increases unsustainable.

Lately, I have been hearing – from pundits on this housing bubble. Canada is going to have one. It is due but not sure when & how big? Never the less they are unified on one point – Canadian housing bubble will be definitely different then the one USA had.

genieSABRE is also of the opinion that the housing bubble is eminent but how different are we Canadians going to be from our neighbors in the south, is the question that needs to be looked into.

housing bubble

Photo Copyright © 2012

Lets see and analysis the US Housing Bubble and its collapse. According to Wikipedia “Causes of the United States housing bubble”

Housing tax policy:


Mortgage interest was tax deductible. This encouraged the use of home equity through refinancing, second mortgages, and home equity lines of credit (HELOC) by consumers. Easy Money.


Mortgage interest was tax deductible on investment properties. Banks & Mortgage Brokers were setting up HELOC mortgages right and left. People took HELOC line of credits and bingo – easy financing for a 2nd. house / rentals!

HELOC loans in Canada have increased almost 170% since 2001 (which is double the rate of increase on Canadian mortgages). In 2011 they accounted for approximately half (50%) of total Canadian consumer credit.

Hmmmmm — Do we see similarities here.



There were quite a few Acts that were repelled but, personally the one that comes to my mind is — The Garn–St. Germain Depository Institutions Act of 1982 (allowing Adjustable-rate mortgages). This deregulation allowed many risky products to exist (such as Adjustable-rate mortgages) which contributed to the housing bubble and easy credit. (as per Nobel Prize-winning economist Paul Krugman & others)


We have this Variable Rate Mortgage. Unfortunately, I do not have the stats as to what percentage (%) do we have VR compared to Fixed rate.
But, we beleive that it is signifient.

Hmmmmm — Do we see similarities here.

Mortgage interest rates:


The Federal Reserve dramatically lowered interest rates in the wake of the Dot-com bubble which spurred easy credit for banks to make loans. Between 2004 and 2006, the Fed raised interest rates 17 times, increasing them from 1% to 5.25%, By 2006 the rates had moved up to 5.25% which lowered the demand and increased the monthly payments for adjustable rate mortgages. The resulting foreclosures increased supply, dropping housing prices further.


Because of the government’s intervention, we are still holding on to the low interest rate. How long can we hold on to it. Question that comes to mind is – What happens when the interest rate goes up – just like in USA.

Hmmmmm — Do we see similarities here.



FHA Seller-Financed Downpayment Reform Act of 2009 — Downpayment Assistance Programs (DPA)
•homebuyer must provide 1 percent of the sales price from their personal income or a minimum contribution of $500.
•he down payment assistance cannot exceed 10 percent of the sales price
•No repayment – Almost free money. Only condition homebuye will maintain the home as your principle residence for min. 5 year +


Remember – Zero Money Down – 5% Cash back. CMHC & the banks pushed them to the maximum. People who shouldn’t / couldn’t landed up buying homes. Thanks to the new OFSI regulations ( see our blog) this cash back business has been withdrawn.
It’s like closing the barn door after the horses have flown – genieSABRE belives this program will play a huge role in creating our bubble too.

Hmmmmm — Do we see similarities here.

Sub-prime Mortgages – Liars Loans:

Subprime” simply means lending to people who would not qualify under traditional guidelines. — high-risk mortgages!


•Subprime lending was a major contributor to this increase in home ownership rates and in the overall demand for housing, which drove prices higher. In 2004, Loans that required little or no documentation of income accounted for 46% of all U.S. subprime mortgages.
•Speculative borrowing in residential real estate has been cited as a contributing factor to the subprime mortgage crisis. Nearly 40% of homes purchased were not intended as primary residences. Housing prices nearly doubled between 2000 and 2006


Prior to 1999, nobody with less than a 10% down could qualify for mortgage insurance, or get financing. But after that, the feds dropped the bar to just 5% – opening the floodgates for both credit and higher house prices.
Then came the Zero Money down – where folks could qualify with a 5%-7% cash back. Only needed was good becon score and LTV
Finally, “no-doc loan programs” Bingo, no need of income or assets verifying doc. These loans were called Liars loans because it features opened the doors for abuse borrowers or their mortgage brokers / loan officers over stated income and/or assects in order to qualify the borrower for higher mortage.
More than $500B of Canada’s estimated $1.1T housing market are considered to be high-risk mortgages. Recently Ottawa began increasing its scrutiny of the CMHC for allowing this level of high-risk mortgages to rise to the level that it’s at now.

Hmmmmm — Do we see similarities here.

genieSABRE’s Conclusion:

Point 1:


So in the United States you had banks
•getting away from doing proper assessments of individual properties before lending excess funds (which lead to people overpaying for properties),
•you had people circumventing down payment requirements (which lead to people buying properties at values which were actually out of their reach), and
•you had liar loans (which lead to people getting mortgages which they shouldn’t have qualified for).


Meanwhile in Canada you have a national data bank CMHC ’emili’
•that facilitates banks granting mortgages that are greater than they should be (which has lead to people overpaying for properties),
•you have people who have been circumventing down payment requirements (which has just now been halted), and
•you have self-employed borrowers securing loans with unverified levels of income (which has just now been halted).

Hmmmmm — Do we see similarities here.



In the United States
•inflationary pressure caused by such factors as increased fuel and housing costs, and
•changes in foreign investments in the U.S. economy, triggered an increase in interest rates. The US Federal Reserve raised interest rates 17 times, increasing them from 1% to 5.25%, between 2004 and 2006.

This triggered the collapse of the housing bubble.


In Canada, the Bank of Canada
•has been sounding the alarm for months now that there will be a “normalization of interest rates” and that Canadians must heed these warnings vis-a-vis their debt situation.
•We have also seen changes in foreign investment here, a factor that some are blaming for the slow down of HAM (Hot Asian Money)
This triggered the collapse of the housing bubble.

So my dear friends, how ANY rational person can sit here and look at the above statistics, and then (with a straight face), try to tell me (or themselves) that real estate will continue to boom simply shows the true power of denial. And all that I hear constantly is, “It’s different here” / “We have these 250,000 new immigrants entering Canada” / “We have Asian/Chinese money so we’ll be fine”. I guess we will see how it all works out, but statistics do not lie.

These neigh sayer’s — It would be like standing in the middle of Hurricane Katrina and, they trying telling me that a storm isn’t coming.

This article was written by Hannif Highclass Real Estate Broker (Genie Sabre Realty) & Mortgage Broker (Centrum Mortgages).      FB=

Also Must Read are the to below mentioned articles. They are the very reason, I wrote this Blog in the first place.

Potentially flawed data used by banks and lenders bump up house prices GRANT ROBERTSON AND TARA PERKINS The Globe and Mail   
CMHC defends automated home price evaluation system


REMEMBER: Real Estate

Home Owners: If, you already own a home – good for you!

May you be blessed with
warmth in your home,
love in your heart,
peace in your soul
and joy in your life.

However, if for any reasons you do intend to move due to upsizing, downsizing, moving to different town or ??? —
genieSABRE recommend you check out our main web site. You will not be disappointed!

Renters: New immigrant, 1st. Time Buyers Renters – its time to stop making your landlord rich.
genieSABRE FREE consultation, will help you & guide you through the whole process from finding the right home, to mortgage approvals, home inspection, lawyers etc Visit our main web, you will not be disappointed!

Real Estate Investors: Home ownership should be your 1st. priority. If you own your own home – Good for you. But now is the time to take that second step – Buying Rental Property for investment. Commercial, retail or home.
genieSABRE has extensive knowledge and experience in this field. As a developer of commercial /retail plazas (built 3 so far) and owners of residential rental homes, we can guide and advice you as to what is best for you according to your personal financial position.

Call: Hannif Highclass @ 416.444.4252


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One Response to “Canadian Housing Market – Bubble, Bubble, Toil & Trouble”

  1. Catherine says:

    RE: My dad for most of his life has been a heavy smoker and drniekr. A story he told several years ago was of going to the doctor and the doctor asking if is prior doctor ever told him he should quit smoking or drinking. My dad answered: No. The doctor was surprised and asked who my dad’s prior doctor was. My dad answered: Dr. _______. The new doctor knew Dr. ______, and that he was a heavy smoker and drniekr, so he understood. What he probably didn’t know is that my dad and Dr. ______ were good friends and would often smoke and drink together.That story told, I’m not really buying EconE’s argument here. Not all the people who die because of not having insurance die because of their personal risky behaviors. On the other hand, even if everyone had insurance, there would still be people who would die of conditions because they delayed going to the doctor. Rate this comment: 0 0


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