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Canada could face housing woes, Merrill warns

The Canadian Press

Latest comment posted at 11:42 AM EST 24/09/08

Absence of Canadian crunch may be ‘cause for concern, not comfort,' economists say; Harper pours cold water on report ...Read the full article

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  1. Nick Palas from Canada writes:
    Funny, 6 months ago we kept hearing 'we are different' and 'a Real Estate Crash won't happen in Canada' and 'prices in Real Estate will never go down'.

    Now, the average price of a house sold in Canada is continues to fall for months shows no signs of slowing.

    Reality has been a bitter pill to swallow for many:

    The Canadian Real Estate Crash has already started...
  2. Burke Fifty from Downtown Toronto, Canada writes: Further proof of what the housing market is actually doing in toronto. This is the classic start of a correction. Growth of 10-15% in prices over a sustained period. ( 2004-2007) falling sales (March 08) dramatic increase in listings ( April - Sept 08) slowing prices ( April - July) and then price decreaes in the city of Toronto (Aug 08).

    Combine this with the crazy amount of new condos on the market - of which more than half are owned by investors,,, combined with the loss of hundreds of very high paying jobs on Bay Street. ( totally unreported story - and will have a huge impact) - combined with the loss of billions of dollars in Blue Toronto's stock portfolio's

    And we have a perfect storm. This pig is going down. Good luck
  3. R. M. from Regina, Canada writes: And it needs to! The prices in little ole Pile of Bones Regina are outrageous esp. when you look around and see all the empty land that surrounds us. I have no idea where all these people are coming from that are supposed to be buying all these new properties, or how they are financing it, or what they are going to do when they get here......our market soared on speculation pure and simple where we had a small market that was easily cornered by property flippers and real estate agents who work both sides of the street and who are nothing but cheerleaders who the higher prices go the more they make...wonderful system.....it will be up to the banks to reign in this nonsense with very strict mortgage conditions and devaluing that second income that people rely on to limp along.
  4. scamp the from Canada writes:
    Time to bring all the prices down. I would love a housing crash now... as I am looking to buy.

    That's a house I want BTW, not a 600 sq foot condo with 500 dollar maintenance fees :P I won't be squandering my money giving it to the residential elite.
  5. Jimmy K from Toronto, Canada writes: YAYYYYYY!!!!!!
  6. T D from Canada writes: Someone has mistimed this news, the public should not know this until the election is over, and the deregulators have their majority firmly in place. How else are we going to let Bay Street and our banks take us to the cleaners like those to the south.

    Remember the neoCON mantra 'greed is good! greed is good!'
  7. Paul Bayer from Parksville, Canada writes: Economy is stuck in second gear . Real Estate has not yet hit bottom. This is not a short term thing . Just now starting to see inflation coming through in the retail end. Buckle up and hunker down.
  8. Kim Morton from Canada writes: If An 'Expert' says so it must be true. After all didn't they predict $200 oil this year? How about the stock market collapse? They all predicted that too. Of course there will be a market correction, the hype by the dirt pimps has driven house prices way beyond their worth. Then we have every finance company in the country telling people to borrow against their none existent home equity to buy more junk they don't need. Sure some speculators will get burned. Looks good on them.
  9. Mo Friendly from Edmonton, Canada writes: It would help if people had to pay the actual costs for the services their cities provide. The problem is hording and gouging by real estate squatters. Buying a home to resell later is fine in my opinion, but buying it and leaving it empty, putting pressure on a system that can't readily expand or contract, is expensive for everyone. Homes have special properties. They are important economic units. Yet they are treated with little difference than a lump of precious metal. This is a problem all over the world, and until we see policies that remedy the economic imbalances involved we'll see bubble after bubble. A simple and effective means of diagnosing the market is affordability using the median average net income of the populace and vacancy rates. The net income of the man standing in the middle, not the mean average. One quickly sees that homes are rarely affordable anywhere in the world until these horder gougers suffer a popped bubble. Politicians, economists, the public, fail to understand this. So the solution ends up extending credit because one way or another people need a place to live in order for the economy to work. And so the economies all over the world limp along through difficult to manage inflation, labour market volatility, imbalanced infrastructure, and other problems needlessly.
  10. Dave AAA from Canada writes: This is like predicting the sun will rise tomorrow. Whether we like it or not, the CDN economy is directly link to the US. As they go, we go.
  11. Clark Kellog from Calgary, Canada writes: NO way! I thought the heavy increases in houses in the Western provinces was because the houses in Europe were so high so everyone was rationalizing that why should Canada be different? 'Don't complain about housing prices going up because we are cheap,' everyone would say, including G&M posters. Calgary was comparing itself to New York, Tokyo, and London, we should have high-cost housing because we are in demand and are sooooo different from those Americans....
  12. A B from Calgary Area, Canada writes: Can't be so.......

    because Jim 'it's Not My Fault 'Flaherty, and El Presidente, King'steve', The Dictator and Chief CON-BORG, said everything is good in Canada, and of course it can't happen here because we saw it coming........ and called an election in panic mode before all you gullible fools voting for the CON-BORGS find out.
  13. Politicians are Fascist Pigs from Canada writes: Look out below!!
  14. Red-necked and persecuted from Canada writes: Memo to CMHC -
    Whoops!
    Those 40 year, no money down, interest only, 'flex' mortgages are about to come home to roost.
  15. Clark Kellog from Calgary, Canada writes: Mo Friendly From Edmonton you hit it on the nose. In Calgary this was a big problem. People would buy a second or third house and leave it vacant, to take it off the market, inflating housing prices. When I lived in the SW I would take a walk and see many houses dark, cold, and empty. People would keep the house and do nothing, no renovations, no improvements, sometimes no upkeep, but keep it off the market so they could sell later for a profit. Now we will see a big slide in the costs as people start to panic that the market is going down, thus selling off the houses post-haste. Owners will realize that they may not make the money they bought it for and don't want another mortgage to pay for, so they dump it on the market all at once. We all know what happens when there is a drastic increase in supply.
  16. A Green Guy from Canada writes:
    This story has no basis in reality...its bull

    The meltdown in the the US was based upon a totally different senario. Housing prices will go down, but are Canadians walking away from houses because they cannot afford the mortgage and they cannot sell. Come on people.

    Why does the G&M run a 5 line story without fact checking?
  17. Tristram Shandy from London Ontario, Canada writes: Is Merrill-Lynch still solvent in the US, or are they one of the many bailouts? Did they predict the US crash?

    I think not, and I don't give much credence to this report either. True, prices may be somewhat inflated here, and arelikely to be more so in the center-of-the-universe, TO, but I don't believe these fortune-tellers.
  18. Mr. Justice from Anytown, Canada writes: Gee . . . maybe the blood-sucking cockroach parasites (buddies of US Treasury Minister-in-Chief Paulson) can come up here and start feeding on whatever's available ?

    And . . . the Republican Wing of the Tory Party will have NO trouble with any of it.
  19. ST W from Canada writes: The major difference is that even if prices drop, the vast majority of owner occupied dwellings, (over 95%), will still have equity in their homes - so we are unlikely to see the very high level of foreclosures and walk aways which some part of the USA are experiencing. For those who speculated they will like do better than a long term investor in Freddie, Fannie, Bear Sterns, and the list goes on. . .
  20. Gary Dare from Portland, Oregon, Canada, writes: Canada isn't facing subprime consequences like the US and UK since they are such a small fraction of the mortgages taken out. Rather it's a price bubble that will deflate on affordability issues; see low subprime markets like in the Pacific Northwest or Chicago's north side and north suburbs (not south), which are seeing a softer landing than the rest of the US. Portland and the Oregon Coast have been driven muchly by California retirees and tech refugees, who are now having problems selling their old places before moving north. Locals forced to rent may come off the fence in the next few months as Portland area prices go down, probably the model that we'll see in Toronto.
  21. John H from Canada writes: SY W, I am not sure where you get your information but as a mortgage broker, my last 4 months have been all about refinancing folks who can't keep up with their credit card payments. And I see folks in their 70s with no equity. It is crazy out there and no one seems to be reporting this. As well appraisals are falling fast. The Globe will pick this up in 6 months...
  22. Time to build a better Canada without Quebec from Canada writes: If some economists and analysts are predicting a meltdown, then the odds are high it's not going to happen. So we are safe.
  23. Jake The Snake from Canada writes: One paragraph! Still waiting for the 'more to come' on this. Could be interesting.
  24. A Green Guy from Canada writes: John H from Canada writes: SY W, I am not sure where you get your information but as a mortgage broker, my last 4 months have been all about refinancing folks who can't keep up with their credit card payments. And I see folks in their 70s with no equity.
    ***

    So John,
    Were you around in te 80's when we went through a down swing in the real-estate market or have you only seen the boom of the last 15 years. The numbers are not bearing out your vision of things across this country.
    By the way, what market are you getting your experience from?
  25. CallofDuty . from Toronto, Canada writes: Woodbridge, Brampton, Newmarket and the surroundings area all over priced. Let it crash!
  26. Freddy Sanon from Ottawa, Canada writes: ST W, the only reason we won't have folks walking away from their homes in Canada is because the government outlawed the practive, after the last housing crash in the early 1980s. With inflation cycling out of control (see yesterday's G&M), the Bank of Canada is going to have to raise rates several times in succession, real soon...
  27. I_Hate_David Miller from Toronto, Canada writes: Shouldn't happen here. To get a mortgage in Canada you first have to prove you don't need one. Then if you can't put the 25% of the purchase price down you are forced to get CMHC mortgage insurance...so if anything it may hurt the CMHC. While it's true prices are declining the amout of leverage here is far below that of the US in terms of house buying. As in Canada the financing isn't done like you are buying a sofa at Leons like it was in the US.
  28. Larry Hill from Canada writes: John H from Canada writes: SY W, I am not sure where you get your information but as a mortgage broker, my last 4 months have been all about refinancing folks who can't keep up with their credit card payments. And I see folks in their 70s with no equity. It is crazy out there and no one seems to be reporting this. As well appraisals are falling fast. The Globe will pick this up in 6 months...

    I have no problem believing you, John. But I would hardly say that your client list is a viable sample. Obviously the people seeking your services would have a problem and likely one that they can not solve via their regular financial service provider.
  29. We Are Not Amused from Carleton Place, Canada writes: Sorry but I don't have much faith in what Merrill Lynch or any other corporate welfare banks say. The have recently shown their mettle down south...
  30. R OBryan from Canada writes: Anything to get their name in the paper. Since no one is investing cause the markets are depressed, Merrill lynch needs free advertising and what better way to increase business than to get people to sell their homes and invest with Merrill Lynch.................... con game that only the wealthy win out on.
  31. ralph sutton from Canada writes: Sorry I don't see it , I see modestly levered homes and over production of condos. There is always over supply during a boom and when it's over the inventories are high and that takes time absorb. Are we going to have a sub-prime melt down ? No way , we never had sub-prime mortgages here in Canada. Are there a lot of highly levered home owners out there ? Likely , but so long as they keep up the payments they will weather the down turn. If not then their homes will be added to the inventory of real-estate and when this is eventually absorbed , then demand will raise . We are in a cycle of boom and bust , but we are by no means in the same boat as our insane neighbors with their 140% mortgage against inflated net worths. Thank God! Stop preaching Economic Armageddon , the sheep are already terrified and the wolves already have more then enough lamb chops to eat! These storms come and eventually they always go , it never rains 365 days a year , neither is it sunny 365 days a year . Peaks and Valleys , just peaks and valleys that's all! Market rise and markets fall , that's what's been going on since the first economy started over 5000 years ago! Stop being frightened and study history , or you may be doomed to repeat it. Panic is for suckers!
  32. lary waldman from Qualicum Beach, Canada writes: I work and live in a small but unique town, about two hours North of Victoria on Vancouver Island. Qualicum Beach, has for many years been a destination for all sorts of people in the summer holiday move. You just can't beat the beaches in this area, geography has been kind to this area. When one approaches Qualicum from the Highway Off-ramp, the first buildings one see's are located on the first Block available, and designated single family. Althoughs houses are close enough to shake hands with your neighbour, beautifully built, it is somewhat a mystery why in over two years, from the present inventory of around 10 homes on both sided of the street, 9 sprout form sale signs. To me a sign of a slowed economy. Throughtout Qualicum there are dozens and dozens of houses for sale both within the Municipal area, and surrounding Qualicum the RDN or Rural District of Nanaimo (this means no water, no sewage service, among a list of other services. It is from these areas that most people who work in Qualicum come from. With wages barely above minimum wage, and Nanaimo just a 30 minute ride away, many residents find it quite convenient to shop in Nanaimo, where they have an unlimited selection of Chain and Speciality food stores.
    The financial circumstance that we find our selves in, will likely wittle down the over 200 Real Estate Agents, that call Qualicum and the surrounding areas home. Sales have fallen here, sharpley, although you could not find a booster (Chamber of Commerce types) to ever admit to that, just a chat with local shop owners with confirm what I say. Here the income is all about pensions, and return on financial instruments, and judging by the cars park here nobody if feeling the pinch to bad right now.But when you speak to people there is a palpable threat to their comfort from all this talk off mortgages and shrinking dividends. It will be interesting to see what the retail storefront looks like in the spring.

    Lary Waldman
  33. Rick Rahim from Richmond Hill, Canada writes: These are the guys that are now looking at the US Government to bail them out for their incompetence. What credibility due they have that makes them an authority on anything, let alone the Canadian Housing market?
  34. Mo Friendly from Edmonton, Canada writes: There you go. They see the home as an economic unit as it should be seen, rather than some simple commodity. When you look at it in terms of a person's ability to pay, you end up considering everything from home heating, to transportation and food costs for the renter/owner/mortgage payer. The market is over-extended because that person is over-extended. The only way it could get this far was by giving too much credit. It'll be interesting to see what 'oracles' and 'experts' blame this on. They could point to lost manufacturing jobs, energy prices, but in the end, it still boils down to societies' failure to set up a reasonable laws governing real estate.
  35. Waiting Foragooddiscussion from Toronto, Canada writes: Some of the above contributors suggest that we can't trust the messenger. Why can't we trust them? Because they let things deteriorate to the point where they were near collapse. The only thing we can't trust about this news is its timing. Anyone examining the situation closely has known it was coming for a few years. Economists, analysts, etc., are generally in the pay of someone, and they don't like to push bad news until it's basically impossible to ignore. For those of you who say it won't happen here, or we will only get a mild slowdown, I suggest you read a few international newspapers or websites. If you honestly think that households aren't going to be affected by all of the bad financial news, and the general economic slowdown, I suggest you are still selling something.
  36. Gordon MacLachlan from Fredericton, Canada writes: Agree with Green Guy - the culture that has led to the U.S. issues is different than the Canadian culture. Having said that though, I cannot believe that the general housing market is not inflated and I'm not talking a token 5-10%.

    I'm a believer in the peak oil theory. I believe that within the next ten years, although there is certainly a great deal of oil out there, we will be paying so much for energy that there will be a general contraction in all aspects of Canadian society with the well being of suburbia and the overall housing market being at risk.

    If we maintain a state of denial with respect to climate change, peak oil and a host of other unsavory matters, we're not much better than the U.S. financial sector.

    Sorry to get off topic
  37. City Wok from Canada writes: Well there are options, ditch the car and the extras and you can save hundreds if not thousands a month.

    When you add up the unneeded extra cell phones for kids, the highest speed internet, the regular phone line, the car and insurance etc., You can easily handle your housing payments.

    We're also a much MUCH smaller population, and while that is bad in some ways, it's also good in others. Cascading failures have less of a bump, and I think Canadians are less likely to walk away from their homes if they loose value rather than take the credit hit.

    That being said, we need a correction as houses are far too overpriced and getting out of reach of most middle class people.
  38. The Central Screwtinizer from Ottawawa, Canada writes: Its inevitable...simply a question of demographics known as the BABYBOOM...its been known for years that house prices will ultimately be affected by a decline in the population...here it is again...the BabyBoom, in case you lived under a rock, is a period between 1946 to 1966 whereby a large birthrate happened following returning G.I.s from WW2...hence the creation of large subdivisions which many of us grew up in and commuting. In turn the BabyBoomers having bought many of these homes over a 20 year period, the eldest now being 63 years old, the youngest is 43 years old, and many of whom are now Empty Nesters, their children being at the age of going to university, college or moving out etc. are left in your average large 3-4 bedroom home always needing maintenance i.e. new roof, new windows, remodelling of kitchens, bathrooms etc...not to mention climbing utility rates and taxes all very expensive while they are in the process of retirement. Some will stay in their homes,many will move for various reasons i.e. being on pension incomes with free time to travel, for example. The issue becomes selling these homes to a younger population base smaller than their own... Therein lies the dilema...to move or not to move and to where and into what, to do something other than maintain the money pit!
  39. Jim D from United States writes: Merrill Lynch is probably right that the economy in Canada will not continue to be rosy if the economy in the States continues to hit the skids. But the route will not be a 'mortgage crisis' like that in the US. Americans leveraged themselves on adjustable rate mortgages, often sold and resold by openly criminal financial service providers. They spent the money on the assumption that they would pay it back with the increase in their property values. They did this, in part, because mortgage interest in the US is tax deductible, and home equity loans (second and third mortgages) are very common. Add in $8,000 revolving credit card debt, per person, and the outcome was assured. Canadians save more and borrow less. Yes, many have high mortgage payments, but in this time of low interest rates, the refinancing of these will not be punative. So, the lesson from all of this isn't really new. If you imitate the United States in social policy, financial regulation, or foreign policy, you have a better than even chance of doing something immoral and fundamentally stupid. It is how the US works, the rich steal from the poor, and a 24/7 bribery operation in the US Congress keeps the propaganda flowing to the sheep. What is surprising is that it doesn't blow up more often.
  40. A Green Guy from Canada writes:

    Waiting Foragooddiscussion from Toronto, Canada...Fair opinion.

    But the point is, Canadian realestate market will not mirror the US for a variety of reasons, one being the regulation in each contry is so different.

    The point can certainly be made that we are not in the massive growth mode we were in the last 15 years, but that does not make us experience the same issues the US has on subprime mortagages.
  41. Newfoundland First from Republic of Newfoundland, Canada writes: Nick Palas from Canada writes:
    Funny, 6 months ago we kept hearing 'we are different' and 'a Real Estate Crash won't happen in Canada' and 'prices in Real Estate will never go down'.

    Now, the average price of a house sold in Canada is continues to fall for months shows no signs of slowing.

    Reality has been a bitter pill to swallow for many:

    The Canadian Real Estate Crash has already started...

    ----------------------------

    What do they mean by Canadian Realestate? Toronto, Calgary?

    The housing market in NL is still booming and not showing an signs of slowing, especially with our new oil projects and mineral projects comming on line. I would suspect the same goes for SK and AB in general. Every where in Canada that the economy is doing well the housing market is fine.

    This is just more fear mongering by some expert who wants to go against the grain in hopes he is right so he can make a pile of money off of it later.
  42. Tam Le from Toronto, writes: Anyone that bought 2 year ago, I would be worred, well not so much if u look at the long term, plus it your home too... But anyone that bought 5 years ago, man the price have to drop so much until u are at the price u paid for it.
  43. City Wok from Canada writes: Waiting Foragooddiscussion: you are right in a way, of course a slow down will affect us. Baring sudden invetions that boarder on star trek techoolgy, Canada will slow as the u.s. buys less.

    But Canadians did not get saddled with high cost homes and low interest rates that were short term, AND most people here are screened way more before they can get a house.

    We have far fewer people who could really not afford a house, and we do not have the brokerage system like the states has that allowed lower income people get dupped (stupid of them yes) by greedy brokerage sales people.

    It is much harder to get a home loan here, and sub prime is non-exsistant if I'm correct, in Canada. I may not be 100% there.

    Now if people loose their homes due to job loss, well nothing we can do about that really, that's the general mood of the economy.

    As for Canadians families running deficits, that can easily be altered by banishing extras like highest speed internet, cell phones for the kids, and the hundreds of dollars a month in services that are really luxuries. Any middle class family can likely look at it's books and shave from 300-700 a month off if you really hack back all those deadly monthly bills for extras.
  44. Freddy Sanon from Ottawa, Canada writes: Jim D, Canadians are very much like Americans in that we (as a nation) have negative savings - we outspend our earnings by something like 8 cents on the dollar ($1 earned = $1.08 in debt). That's a recipe for disaster.

    And Newfoundland First, SK and AB are most assuredly NOT doing well...check the August housing stats for the Regina and Calgary markets.
  45. evelyn robinson from Canada writes: Nick Palas from Canada writes:
    Funny, 6 months ago we kept hearing 'we are different' and 'a Real Estate Crash won't happen in Canada' and 'prices in Real Estate will never go down'.

    Now, the average price of a house sold in Canada is continues to fall for months shows no signs of slowing.

    Reality has been a bitter pill to swallow for many:

    The Canadian Real Estate Crash has already started...

    Realestate prices do go down and then up again in cycles.
    After the ridiculous increases in recent years; the tiny drop in prices in most areas is really insignificant. Even further drops will happen.
    Then it will be back to where we were. Hopefully any increases in prices will be slower. The recent increases were ridiculous.
    Sorry but since we paid less than 60 thousand for our home 25 years ago; and got more than our moneys worth in rent already; not about to try to sell my house now; if I did would still get 10x what we paid.
    So I would say; don't panic and hold on.
  46. john may from writes: Several months ago in Washington the CEO of a well known mortgage bank, may have been Countrywide, told Senate/House banking committe that 18% of the mortgages were given to home buyers who could not make the first payment. The well dressed smarmy CEO did not seem too concerned, I just about fell off my chair laughing. Only in America !! In May of 2007 the stock hit $41, in June it was down to $42.25 and he was still CEO
  47. M M from canada, Canada writes: I'm sure many people over bought on their houses (a friend of mine who was divorced at 51 thought there was no problem in taking out a 30 year mortgage so she could afford her dream home until I reminded her that she would be paying mortgage payments until she was 81 and that was a sure way of killing her retirement). And others have being using their line of credit as an ATM to pay for their 'needs' - these individuals may be regretting some of their financial committments particularly if they experiece in cutbacks in their jobs. But I'm not sure that we are in a similar position as the US where mortgages were handed out to people with NO ability to pay the mortgage and in some cases people were just paying the interest on their mortgage.
  48. Olivia Brownbeck from Canada writes: This is exactly the concern that Jack Layton raised last week (i think) when he was discussing consumer protection and was asked about the market meltdown in the US. Harper's cavalier attitude goes beyond needing to reassure the market to an entirely laissez-faire attitude. Meanwhile the world economy is teetering and the US economy is on the down slope quick . Harper went so far as to say that he would never bail out a company or industry. Full stop. Layton on the other hand had a measured approach, noting that he would need to see the circumstances but he would do what would be best for Canadian families. Which is the right response. Harper's response belies an ideological rigidity that god forbid the Canadian economy and financial institutions start to tank could actually make things much worse.
  49. Michael Manning from Mississauga, Canada writes: Burke Fifty from Downtown Toronto, Canada writes: 'And we have a perfect storm.'

    Please, oh please, excise that much over-used phrase from your vocabulary.
  50. Matthew D. from United States writes: The messenger is more important than the message in this case.

    Merrill is issuing analysis? They couldn't analyze themselves and avert their own near implosion ...
  51. Voltaire's Distant Cousin from Toronto, Canada writes: Blaming 'sub-prime mortgages' for the US crash is a lot like blaming lightning for a huge forest fire. Strictly speaking, the lightning did start the fire, but the real cause was the dry forest. If the forest was wetter, the fire wouldn't have spread.

    The real reason why the US market collapsed was that they borrowed too much money. This excessive borrowing was the equivalent of a dry forest. American buyers believed the free market fairy tale of never-ending growth brought on by low taxes and 'market friendly policies'. Because in their mind the market would grow 'forever', they borrowed and borrowed some more, leveraging themselves to the hilt. The borrowed money flooded into the market and created the impression of a boom. But in reality, the boom was an illusion. It was funded by borrowed money. Now we are starting to realize that those loans must be paid back.

    Canada has a similar situation to the US. We have borrowed and leveraged ourselves against inflated housing values. We have bought houses with zero down, to be paid back over forty years. Our forest is dry, and we wait with fear for a lightning strike. Given that our largest trading parter has seen its three largest investment banks become insolvent, I suspect that 'lightning' will become more common in the near future.
  52. Bill Wall from BC, Canada writes: What we are most likely to see is a slight decline in prices and a long period ahead of us with no appreciation.......could be 10 years or more. Most people with excess investment housing have it on the market right now so if the market can chew through the inventory over the next year without panic price cuts, we'll see a stable slow-growth market for many years to come.

    People have to remember that the floor of housing prices tends to be just below the cost of building new, and those costs are in a new paradigm with new regulations, building code changes, warranty costs and development charges being heaped on land. On this basis, housing will remain more stubbornly high than in the US where they can build cheaper with illegal immigrants and looser building requirements.
  53. True North from Canada writes: Relax, Harper promised us the worst would have already happened to the Canadian economy by now.
  54. Peter Stern from Toronto, Canada writes: Well one huge difference between Canada and the US is that high commodity prices are a big benefit to Canada overall whereas in the US, it's a big negative overall. And as a homeowner, if prices fall, it doesn't really matter to me. I still have plenty of equity that continues to build as I make my mortgage payment every month. Even if there was a big meltdown in prices, it won't matter. Short term price fluctuations don't matter to most home owners. And even if I had to move, I'd merely be selling in a down market AND I'd also be BUYING in a down market as well. For there to be a housing meltdown in Canada, commodity prices would need to seriously tank AND interest rates would have to be significantly higher.
  55. A Green Guy from Canada writes: From and article in the Post
    'Most of Bay Street has argued there is little risk Canada could suffer the same kind of housing-led credit crunch that is now hammering the United States and to a lesser degree the U.K. but one economist argues all the ingredients are there.'

    Note they identfy just ONE!

    His basis for that statement is: 'Mr. Wolf said the underlying source of U.S. troubles stemmed from the simple fact banks lent people too much money to go out and buy houses but there were obvious danger signs in the data.'

    In Canada the system for lending to buy a house is completely different. CMHC is involved when less than 20% down is made. Additionally, banks cannot foreclose and sell the property in Canada under the current market value of the home.

    Sure debt load will grow when asset value (house prices fall) drops, but to compare it to a US model is just unprofessional.
  56. David Gehring from Kingston, Ontario, Canada writes: Merrill Lynch missed the mark here, but several posters here already got it right. Canada does not have subprime mortgages and the standards for getting a mortgage are generally higher, so a downturn in the economy will not trigger a vicious cycle of defaults, falling real estate prices, negative home equity then more defaults. Sure, there will be a downward adjustment in real estate prices, but a collapse would have to be triggered by much more than what we are seeing now. Not sure why ML would go public with such a lousy analysis, especially when they probably have a well sized stake in Canadian banking and real estate and such a negative forecast would not help their own cause.
  57. P T from Victoria, Canada writes: Sadly, no where else in this country needs a market correction like BC, housing has been overvalued by 25% for ages. In Vic, you get an okay house for 300K, nothing that is that nice.
  58. Waiting Foragooddiscussion from Toronto, Canada writes: Green Guy: Thank you for your measured response. I suspect things won't be as bad as they are in the U.S. However, I don't think we have any way of knowing how many liar loans there are in Canada. One of the mortgage broker associations keeps saying that only 5% of mortgages in Canada are subprime, but they have never, as far as I know, shown how they arrived at this figure. City Wok says that we don't have the brokerage system like they do in the States. Many Canadian brokers offered mortgages to people with bad credit, fake jobs, etc. All they would do is charge an extra $500 to $1000, and they would make it happen. If a service proliferates, as did mortgage brokers, it is safe to assume they were competing ruthlessly and possibly engaged in questionable practices. There was serious money to be made in the last 7 or 8 years. Apologies to honest brokers, because there are some.

    So, I don't think we have nearly as much subprime as in the US, but I do think we have more NINJA mortgages than we realize.
  59. Silent Majority from Canada writes: Tam Le,
    Exactly. Those who bought over the last 2 or 3 years would be hardest hit by a real estate price correction. Those who bought 5 years ago would have to see a 50% reduction in house prices before their equity is affected. Buy a house to live in not as an investment.
  60. A Green Guy from Canada writes: Freddy Sanon from Ottawa, Canada writes:
    And Newfoundland First, SK and AB are most assuredly NOT doing well...check the August housing stats for the Regina and Calgary markets.

    **

    Freddy,
    Housing starts are new construction, not resale value of existing homes. New home stock and growth is a factor for the decline in prices due to supply.
  61. Grey Griffin from Ottawa, Canada writes: For all you aspiring homeowners hoping for an American style housing crash so you buy on the cheap, here is a news flash! 'Crash ain't going to happen.' I amazed at how many posters (and economic pundits) have no grasp of economics.

    Here is the economics lesson for today. No subprime mortgage market in Canada. No wave of foreclosures in Canada. No mass hysteria in Canada. No housing crash in Canada.

    Having said that, there have been some mini bubbles which will 'pop' in places like Regina, Calgary, and condos in Toronto. We will see a correction in these specific markets. But if you own a home (or want to own a home) in places like Hamilton, Ottawa, Trois Rivieres, Halifax - you can forget about a crash. Ain't going to happen.
  62. DTK Penner from winnipeg, Canada writes: The fact that this is coming from a company that has just been recently bailed out by Bank of America due to market misjudgement is a joke. Maybe they should first learn how to run their own company first.
  63. Joseph Bloggins from Canada writes: The always foolish Mr. Justice from Anytown, says 'Gee . . . maybe the blood-sucking cockroach parasites (buddies of US Treasury Minister-in-Chief Paulson) can come up here and start feeding on whatever's available ? And . . . the Republican Wing of the Tory Party will have NO trouble with any of it.' Actually, you should probably look at your Democrat friends….including Al Gore. 'Two law enforcement officials said Tuesday the FBI is looking at potential fraud by mortgage finance giants Fannie Mae and Freddie Mac, and insurer American International Group Inc. Additionally, a senior law enforcement official said Lehman Brothers Holdings Inc. also is under investigation.' Lehman Brothers….let's see who is connected there….oh look! Al Gore’s carbon trading business GIM was banked with Lehman Bros. Last year Lehman Brothers released a long and highly publicized report about climate change in which they preached about decarbonization, trying to make their investors in an attempt to insure high profitability from the Kyoto carbon trade scheme and the support of huge public subventions. Who was Lehman Bros’ ‘scientific’ adviser on climate? You guessed it, James Hansen, the same guy that wants to drive the world to bankruptcy as he did with Lehman’s Bros. In Lehman's report, “The Business of Climate Change ll”, the following acknowledgement is made: “On the scientific side, we are grateful to Dr. James Hansen, Director of the NASA Goddard Institute for Space Studies, who, at the end of a particularly informative dinner hosted by Ben Cotton of the Man Group, gave generously of his time to clear up a number of scientific questions that had been niggling us. Dr. Peter Collins and Richard Heap of the Royal Society provided valuable input and brought us up to date on the more controversial areas of scientific developments in the domain of global climate change.” Yep, looks like the FBI might get to the bottom of that scam sooner rather than later.
  64. Scotia Rae from Canada writes: Newfoundland First from Republic of Newfoundland, Canada writes: What do they mean by Canadian Realestate? Toronto, Calgary? The housing market in NL is still booming and not showing an signs of slowing, especially with our new oil projects and mineral projects comming on line. I would suspect the same goes for SK and AB in general. Every where in Canada that the economy is doing well the housing market is fine. You should look at the last 6 months of data on the west - if any housing markets have 'crashed' in Canada its Calgary and Edmonton! Toronto shows an 'increase' which they like to spin but since the increase is less than inflation its actually sliding a bit as well. There are always going to be small pockets of growth in places (re St Johns) but that's not a very big market with only 500k people in all of NFLD. You could argue during the boom times in the west that Sydney, Cornerbrook and Sudbury were tanking which they were based on the numbers! I think what you have in Canada are several bubbles, some bigger than others. Alberta had a classic real-estate bubble. Toronto much smaller. The bigger the bubble, the bigger they pop! I'd say if you live in the GTA, Halifax, Winnipeg, Ottawa etc you are probably going to see prices not keep up with inflation and stagnant, however they never got that outrageous in those cities. Certain cities in the West, re Calgary and Edmonton had so much speculation going on that people are going to (or have already seen) 20-30% correction. And you're only losing money if you need to sell!
  65. John Oliphant from St Catharines, Ont, Canada writes: Yet more negativity from the Globe and Mail. Why does it print this garbage or does it not recognize the source !!
  66. Bub Slug from Bawlf AB, Canada writes: Gee and Steve Harper said he didn't believe there was anything seriously wrong in Canada's economy as it would have hit us before now and didn't. So why worry eh?
  67. John Rowat from Austria writes: In the US, mortgage interest is tax deductible - not so in Canada. Big incentive to overload on mortgage debt in the US.
  68. Outlier in Calgary from Canada writes: It is a bit odd though here in Calgary. When oil was $60 a barrel a few years ago housing prices were skyrocketing due to the huge windfall. Now with oil nearly double that, the market is cooling off. Meanwhile, places like Regina, which, I'm sorry to say, don't have the underlying economy to justify huge market moves, are booming. Personally I would place my bets on the oil economy for the mid term and the speculative bubbles in SK are likely going to burst soon.
  69. Another Option canada from Canada writes: These Guys really don't have a clue do they. The Houseing market could crash-stabilize-drop-20%- all the above so the new C-Y-A Market aproach.
  70. Richard Keefer from Omemee, Canada writes:
    A POST-ELECTION TOXIC SURPRISE FROM HARPER!
    CMHC WILL NEED A BAILOUT

    Get this, CMHC recently increased its limit to $450 Billion of mortgage loan insurance. And it couldn't happen here!

    Almost everything in Canada follows the 'divide by ten rule'. So if the U.S. needed a $700 Billion bailout, expect a $70 Billion one here when Harper is back in the driver's seat. Eeee-hah. Macho goof.

    HARPER IS SOFT ON MANAGEMENT SKILLS AND FORESIGHT
    HARPER IS SOFT ON DISCLOSURE
  71. Scotia Rae from Canada writes: Grey Griffin - I agree with you, although I think the condo market in Toronto is tough to call - I think subburban GTA condos are insanely priced but ones in the core not so much. Just my opinion
  72. yuri gershman from Toronto, Canada, Canada writes: Guys who are still in denial, please consider:
    Yes, large household debt alone is not enough to bust the Real Estate.
    Real Estate is a first order differential of the Broader Economy.
    Do you think that while US economy is heading to the intensive care unit, Europe and Japan are in the recession and China is slamming the breaks, Canada will continue running in front of this freighter train and joyfully whistle?
    God! Only blind doesn’t see what is coming from the South!
    It is like saying: &8220;Our controls (Banks) are intact and all systems are sound&8221; while our Titanic is taking water through 9 meters gash bellow the waterline (85% of our industrial output is going to US).
  73. Unsure Voter from Guelph, Canada writes: This story is so far off. MAYBE there might be some issues at B and C lenders who will lend to anyone. You won't see this happen at the big banks, though, because they are so tight on their credit requirements that this stuff doesn't happen much. Plus, as many people have pointed out, you have to have CMHC or Genworth insurance to get a mortgage higher than 80% of the property value. And to add to that, the government has pulled back the reigns (yes, the current one, remember, the Tories that apparently are about DE-regulation?) so that you HAVE to have 5% down to buy a house, and you can no longer do 40 yr ammortization. I think the move was too regulatory, but better safe then sorry I guess!

    As for the value of real estate falling, it's called a price correction. If the price of oil falls, we don't say that the oil market is crashing do we? People have simply had enough of paying way too much for properties in Canada so the prices are dropping. It's not the banks trying to clear out a whole bunch of forclosed properties like in the US. Sheesh ML, now I know where NOT to put my money!
  74. Dorah Gorley from Canada writes: You don't have to be any kinda of a market guru or uber-analyst to know that the RE market has already gone to the dogs in Toronto - just look at the bus stops. They are plastered all over with realtors' ads. What else does one need to know?
  75. Scotia Rae from Canada writes: Harper is an economist by trade and an internationally recognized protigy in the field in his younger days
  76. Gurmeet Brar from Calgary, writes: The excesses of the past 7 years have to be accounted for at some point. We are a greedy lot, just like our neighbors to the south and elsewhere, and lately everyone had become a real estate expert and mogul. Just look at the explosion in realtors across the country. Now it is payback time and the pain will be severe. You know it, don't you?
  77. jason hindle from Hamilton, Canada writes: Would be interesting to see Merrill's short positions - Cdn Banks? Cdn Homebuilders? Cdn Real Estate Holdings?...these guys have 0 credibility after their colossal failures in the US mortgage collapse. Why would anyone not think, what's their play in wanting to see a similar collapse in the Cdn economy?
  78. yuri gershman from Toronto, Canada, Canada writes: Outlier in Calgary from Canada writes: It is a bit odd though here in Calgary. When oil was $60 a barrel a few years ago housing prices were skyrocketing due to the huge windfall. Now with oil nearly double that, the market is cooling off. Meanwhile, places like Regina, which, I'm sorry to say, don't have the underlying economy to justify huge market moves, are booming. Personally I would place my bets on the oil economy for the mid term and the speculative bubbles in SK are likely going to burst soon.

    Well, guess what will happen in Alberta when oil drops back to $60 with break even cost of $74/barrel for new oil-sand progects?
  79. Todd Grierson Weiler from Does it Really Matter?, Canada writes: Please excuse me if I don't jump when someone at Merrill Lynch makes predictions about the state of the economy, much less on real estate asset prices.

    Economists, heal thyself!

    PS - welcome to Bank of America; better luck next time with all of your clients' money.
  80. Free The West Free The West from Free the West, Canada writes: Yup, the Lefties are dying for bad economic news in hopes that it might rub off on Harper. Canadians starving in the streets would be perfect for them. This paper is continually trying to manufacture a downturn. I like in the headline 'Absence of Canadian crunch so far may be ‘cause for concern, not comfort''. What a joke this paper is.
  81. Kevin MacKinnon from Perspective, Canada writes: Pull your heads out of your rear ends.

    The same Merrill Lynch analysts have not made one correct forecast in any press release this year, last year or 2006. Hmmm. Good thing that Merrill Lynch survived the USA financial industry liquidity crisis that they foresaw...oh wait...they didn't, and they didn't.

    Secondly, the distinct difference between the Canadian banking structures, laws and regulations are significantly different than the rules, operational models and regulations of both America and England. It is substantially impossible for the exact same scenarios to unfold with the same impact. To think so underpins the relative ignorance with which they speak, and is unfortunately adding to the Henny Penny hysteria.

    Financially, where we should all be focused is to conservatively move forward, reduce debt, and look at ways to re-stimulate the manufacturing and service manufacturing to generate broader capital growth and wealth. Commodities will end some day. Either the thirst will be sated, or the supply will have dwindled. At that point, did we make the best use of our advantage of time and revenue?

    It is a shame that the Globe and Mail has reduced its journalistic integrity in the financial arena to purely speculative and sensationalistic content from pretenders. at one point in the not too distant past, they helped provide balance to the harder edge of the Financial Post.
  82. val tonik from Toronto, Canada writes: Perhaps, perhaps… But it also depends on the area, the neighbourhood. Some neighbourhoods are more in demand then others, and in the US some areas never saw any price decrease, on the contrary- the increase. Population growth and immigration, transit pricing and clogged city roads will affect people's house buying decisions. Also neighbourhood's reputation plays a role. I remember in Moscow, where housing market is soooooooo overpriced, there was a talk of prices collapse for about 4 years now, and what we see is only an increase. Same in Paris.

    The US financial crises is a fraud, and should be treated as such in my, and, apparently, the FBI's view.

    The economy is adjusting to new technological and social realities and soon will be on the way up in a new direction. I will give it 1 year at max.
  83. A Green Guy from Canada writes: Waiting Foragooddiscussion from Toronto, Canada writesOne of the mortgage broker associations keeps saying that only 5% of mortgages in Canada are subprime, but they have never, as far as I know, shown how they arrived at this figure.
    ******
    We have 0 subprime mortagages in Canada. Anything under 20% down is insured by CMHC, for which you pay a higher dividend for that mortgage.
  84. Stude Ham from Outremont, Canada writes: So who are you going to believe?

    A bunch of 'egg-headed' economists or our highly (in)experienced cLoWnservative finance minister?

    Amazing how so many voters can be fooled over this choice!

    DUMP HARPER!
  85. RJS W from Canada writes: Ya gotta wonder about Merrill's motivation here.

    First, apples to apples please: mortgage interest is tax-deductible in the U.S., lowering their percentage of DISPOSABLE income load.
    Second, I've read just this week that many Americans (who obviously cannot afford their homes) were leveraged to 50% of their income on their mortgages! That's a lot higher than 6.3%.

    Then there's the reader's astute comment that you can't get a mortgage here unless you don't need one.

    Correction yes, meltdown - not likely.
  86. James MacDonald from Edmonton, Canada writes: This is great news. Finally, I will be able to afford a mansion.
  87. The Middle Finger ..I.. from Canada writes: A Green Guy from Canada writes: We have 0 subprime mortagages in Canada. Anything under 20% down is insured by CMHC, for which you pay a higher dividend for that mortgage.

    >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

    CMHC - The silent government bailout.
  88. Paul F. from ON, Canada writes: We've got some 'innovative' financin