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Another week, another check mark in the game of Canada’s slow-motion housing crash bingo.

Let’s recap the sequence of events that led up to the US housing crash and let’s see how many of them we’ve hit so far.

Step 1: Households Take on Massive Mortgage Debt

This is the first step of any housing crash where average families take on stupid amounts of debt, borrowing excessively under the assumption that any amount of debt is OK because housing always goes up. Right before the American housing market collapsed, Americans borrowed 147% of their household disposable income. And in Canada? Right now we’re sitting at 171%, according to the Toronto Star.

We’re #1! We’re #1! In…debt! Yay?

Checkbox #1.

Step 2: Sudden Increase In Mortgage Payments

The catalyzing moment for the US housing crash was when those stupid sub-prime loans with artificially low teaser rates reset, doubling people’s payments overnight. Mortgages that were comfortable all of a sudden became stretched, and mortgages that were already stretched became catastrophically untenable.

And as I wrote about last week, thanks to the B20 rules that now require everyone to qualify at the posted mortgage rate plus two percent, mortgage rates just doubled here in Canada. The resulting effect was a drop in the amounts buyers were qualifying for, and as a result a drop in home prices. People who bought right before Christmas immediately saw their downpayment evaporate. Some are already underwater.

Checkbox #2.

Step 3: A Sudden Shock to the Labour Markets

When you’re this indebted, with all your life savings gone, and a giant mortgage hanging over your head, you’d better not lose your fucking job or the entire house of cards comes crashing down.

Canada shed a net 88,000 jobs during the month, a sharp stop to a recent stellar performance that saw 2017 produce the biggest increase in jobs since 2002.

Canada Posts Biggest Job Decline Since 2009, Bloomberg

Well, shit.

What happened? Well, apparently while I was off traveling and not paying attention to Canadian politics, our lefty government decided to hike Ontario’s minimum wage from $11.60 to $14, an overnight increase of over 20%. I actually noticed something different the last time I was back in Canada. I was walking around the shopping centres in the downtown area, and I noticed that all the tellers were gone. Every store, it seemed, had been busy replacing their checkout lines with automated touchscreen kiosks, and I was like “That’s weird. I wonder why they’re all doing it at the same time?”

Turns out, this is why.

After all, why pay some annoying high school student $14 an hour when you can just replace them with a machine? And as a result, bye-bye jobs.

Checkbox #3.

Step 4: Wave of Foreclosures

So the next step for the US housing market was a wave of foreclosures, brought about by mortgage payments suddenly jumping to unaffordable levels and people losing their jobs. I remember being in Fort Lauderdale at the time and driving around the city with my cousin. Back then, there were foreclosure signs everywhere. Entire neighborhoods were abandoned, seemingly overnight. It wasn’t pretty.

We haven’t gotten to that point yet. And hopefully we won’t. As annoyed as I get by stupid people buying overpriced houses and then bragging about it, I don’t actually want them to lose their home. That would be bad for everyone.

There’s actually a few things that are different in Canada that may provide a backstop and prevent this step from happening. First of all, in the US, they had non-recourse defaults, in which people could just stop paying their mortgages, hand the keys back to the bank and walk. That relative lack of consequences caused people to default as soon as things started getting hairy. We don’t have that here in Canada. If you default, the bank will take your house, and also come after you for any amount you still owe. So defaulting isn’t nearly as easy or painless up here as it was in the US.

Secondly, the doubling of interest rates doesn’t effect everyone. Existing borrowers who are on fixed interest mortgages don’t actually see their payments double like the Americans did. Only new borrowers see that. This will have the effect of everyone’s house going down in value since there’s now less money available to borrow if you move, and it may take a chunk out of lots of people’s net worth, but will it force homeowners into cash-flow-negative territory overnight? I don’t think it will.

And thirdly, the job losses that happened in January were predominately part-time jobs.

The drop reflected a record loss of 137,000 part-time jobs, and a 49,000 gain in full-time work.

Canada Posts Biggest Job Decline Since 2009, Bloomberg

So a lot of minimum-wage-earning cashiers lost their jobs, but were those the kinds of people who owned a lot of real estate? Probably not. So while the job losses were bad, I’m not convinced that will have the contagion effect into the housing market that the US saw. Yet. If we start shedding more full-time white-collar jobs, all bets are off.

Step 5: Banks Start Failing

And finally, the wave of foreclosures caused banks to start failing, sparking off the Great Financial Crisis. We haven’t seen anything like that yet, and in fact, Canadian banks have been posting record profits lately.

The reason for this is while Canadian homeowners have seemingly learned nothing from the American housing crash, Canadian banks have. RBC and Scotiabank have been aggressively expanding into Latin American countries, and banks like TD have now become pretty firmly established in the US. The last time I was in the States I was surprised to find TD Bank branches all over the place and TD Ameritrade commercials running on TV.

So while Canadian Home Boners have been concentrating all their net worth into a single asset, the Canadian banks have been quietly diversifying out of Canada. Smart.

A Tale of Two Crashes

As I’ve written before, there are two ways a Canadian housing crash can unfold. In the first scenario, house prices drop and cause homeowners all sorts of misery. They get trapped in their underwater houses, and become permanently tethered to their jobs. They’ll be forced to work in debt slavery for decades, never getting ahead, never able to save any money, and their lives will be miserable and stressful.

That’s the best case scenario.

In the other, much worse scenario, the housing crash causes a contagion effect that takes down the banks, and the entire Canadian economy along with it. Everyone suffers, even those people who never bought a house to begin with.

Will The Defenses Hold?

You can’t trust people with debt. Every Bank of Canada governor warns the public at every press conference not to binge on mortgage debt, only to watch everyone ignore their advice and do it anyway. Smart people trying to lecture stupid people about how to manage their money responsibly never works, because stupid people will always find a way to shoot themselves in the foot.

The only thing that smart people can do is build a wall around those stupid people and make sure that when they blow themselves up, everyone else doesn’t get dragged down with them. Right now, we’re at a crossroads where banks, governments, and financial regulators have been quietly building those walls and preparing for the day when our housing market screeches to a halt. The B20 regulations, after all, were designed to trigger a housing crash-like situation in a slow, somewhat controlled burn rather than have it blow up in a messy forest fire.

The Home Boners can’t be saved. It’s too late for them. But do you think the crash can be successfully contained, or will it burn out of control like in the US?



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61 thoughts on “Contagion”

  1. As they said in the United States during 2006-2007… “It is all contained”. I suspect at some point we will see the same here. If just one bank gets into trouble, it will be like a house of cards. Debt is out of control, those that have cash will be able to get the best assets while the rest try to maintain their homes and pay off debts.

    I’m optimistic about the future but the majority of people in Canada are clueless that markets can decline and that makes the situtation dangerous. People are paying upward of 1.7-2 mil for houses that just a few years about wouldn’t be worth more than 800-900k but they are doing it with HUGE mortgages. I don’t know when this will all happen nor do I care because I am prepared.

    1. Yeah, me too. I spent so much of my working life trying to predict a housing crash so I could get in. Now I just don’t care.

      Do whatever you want, guys. Just keep your shrapnel to yourself when you inevitably blow yourself up.

  2. Toronto isn’t representative of the whole country and we are definitely not seeing this in Montreal. Our downtown condo (which we bought in 2011 to house our daughters while they were at university) sold after only 9 days. It’s true that the buyer did have difficulty in getting a mortgage even if he was pre-approved. Our agent has been noticing a significant increase in interest from foreign investors that have been scared off from the Vancouver and Toronto markets.

    Since we’re FIRE’ing in a few months, we’re now getting ready to sell off our primary residence and move off to a quieter and less expensive area. It’s a starter home near a commuter train station so everyone expects a quick sale as well. We acquired it in 1997 for $96k and paid off the mortgage in 9 years. Much uglier comparable houses have been selling for $300-350k.

    1. Just to put that $96k to $300k price increase in perspective, that the equivalent of ~5% compound interest over 21 years. Factor in the property taxes, mortgage interests and the $60k in renovations we’ve put in over the years and that % gets even lower.

      1. However, to be completely fair:

        – No capital gains tax or distribution taxes – guaranteed. Other investments depend on tax situation.
        -And no renting costs. So these would offset some of the other expenses if doing a like for like.
        -Also the high end of $350K would be much more growth. Over 6%. And you did say your place was nicer!
        – Meanwhile selling will cost 4-5%.

        Upshot is (naively assuming no tax relief on an investment portfolio outside an RRSP and renting costs similar to mortgage+loan carry):
        Top line could be equiv to a portfolio that netted as much as 8% compounded if you factor in all the above.

        BTW for comparison the TSX grew from 6500-15600. Which is ~4% compounded.

    2. Montreal hasn’t had the crazy rise in prices, so not much risk of a collapse, either.

      Girlfriend and I are in the middle of getting ready to buy a house, probably in the next year or so, while first moving to a bigger rental apartment in July, so we’re watching the market fairly closely. Things in commuterville seem to be selling very well. In the Vaudreuil/St Lazare area, nice houses sell quite quickly, although it’s nowhere near the bidding war mania Toronto and Vancouver have known. Two of the three houses I went to see last Sunday already had offers in on them. That said, we’re talking about houses that cost between $265k-$400k with lot sizes approaching 20,000 sq ft and still within nearly-livable commute distance to downtown. (Girlfriend now works from home, and I work out of the airport and usually no more than about 2-3 times per week, so living further from the city will work fine for us.)

      Interestingly, and perhaps worryingly, the narrative is that Chinese money has started coming to Montreal. Realtors have been telling me that the Chinese are now buying in Montreal and the West Island, and although they’re staying on the island, the sellers are moving off-island, causing increased sales activity out there. Montreal prices have ticked up a bit, so who knows what might be coming? No doubt the real estate industry will use this to froth up FOMO, but maybe B20 will help curb the insanity…

      The realtors of the houses that I’m looking at also told me that getting financing is a bit of an issue, even in Montreal. To my surprise they told me it’s not uncommon for financing to fall through between the pre-approval and final-approval stages. If locals are already having trouble at current prices, maybe that will help keep a lid on things getting out of hand. I know that in my circle of friends and coworkers, many of whom are better-educated than I am, the idea of putting 20% down strikes them as very difficult, even at these affordable prices relative to Toronto and Vancouver. Then again, just last night a coworker of mine was talking about how old her 6 year-old car is. When I told her that the newer of my two cars is 14 years old, she asked me to repeat myself, so people clearly still have money to spend.

  3. Mortgages are like enormous credit cards. I read about people getting in trouble with credit-card debt all the time. If people are prone to problems with credit cards, avoid mortgages like the plague as they’re credit-cards on steroids. The problem is that they’re hard to say no to because they come in pretty packages, like a beautiful fancy home you’ve always dreamed of. Be aware of what lurks behind that pretty-packaged home: A mortgage that wants to steal every dime from you.

    1. I know! And the worst part of it is that everyone knows credit card debt is “bad debt” but yet somehow people have become convinced that mortgage debt is “good debt,” so they just go all in on it.

      People are idiots. Ugh.

  4. Typically I love everything you both write, but today just wanted to note something in this article. 30% of the entire adult working population in Ontario made minimum wage (when it was $11.60) now that it is $14/hour 50% of the entire adult working population in Ontario makes minimum wage. That isn’t high school students – those are adults supporting themselves. At the risk of sounding rude – that could be daycare workers, nannies, personal support workers, etc. – looking after the kids and/or older parents of Software Engineers (ahem) while they are at work…. I have no idea if having a higher/rapidly hiked minimum wage is the best answer or not. But isn’t it a bit sobering to think that half of all working adults in Ontario make minimum wage??

    1. Well whatever that number was, it just got a LOT lower now.

      That IS surprising though. I’m gonna have to look into why that is. I mean, the last time I made minimum wage was working as a carny at Centreville.

    2. Can you point me to where you got that 50% # please? I’ve been looking for it and can’t find anything to confirm it (or explicitly refute it). Closest I found was a Citizen piece that said 20% of all workers are affected by the increase (and that would mean a smaller proportion of working adults).

  5. Completely off topic question for you wanderer: what are your thoughts on Vanguard’s new asset allocation ETFs in Canada? (Vgro, vbal and vcns) I loved your tutorial you were running, but this seems like an even easier method (one fund). I think it’s best for people early on building wealth, and not necessarily later on when they might need to diversify their accounts for tax planning purposes, but I think I can get my wife way more on board with this simplicity once I get her over the fear of stocks in general.

    I have a Lira being setup from our company DCPP that got bought out and I plan to use VGRO along with a DRIP to avoid having to buy small shares with limited dividends.

    1. It’s a wrap fund, and I hate wrap funds.

      They TELL you what they own under the hood and then charge you for the privilege. Just own the underlying assets yourself and save the fee!

      1. I dont know VGRO. Looks like a new multi asset fund. MER is 0.22%.

        For what it’s worth, I use XAW for my taxable account International Equity exposure (All World ex-Canada – MER: 0.22%).
        I thought a lot about having each underlying asset separately but for the sake of simplicity, I decided to go with this “multi-equity” ETF (5 underlying ETFs).
        Over the long term, I think I will probably be tired of dealing myself with 5 separate ETFs for my taxable account international equity exposure, and I m ok if this simplicity costs me a few extra basis points (still the MER is only 0.22%) =)

        That being said is it not a multi-asset ETF and I probably wouldn’t go with a multi-asset ETF. I think there was an article recently on CCP on the new Vanguard ETF. Havent had the chance to read it yet.

  6. I agree with Andre that the apparent drop in Toronto prices (as clearly illustrated through your article on what the neighbours paid in Whitby) is not necessarily reflective of other parts of the country.

    I’ve heard exactly the opposite for both Kitchener-Waterloo and London, only 1 and 2 hours from Toronto. In fact, one realtor even claimed last week that she was competing against 20 offers on a KW property that had 386 (yeah, 386) visitors to an open house. Now that is something I simply can’t understand! (It was so outrageous, I actually remembered the exact number…)

    1. Yeah I get it. But remember, I grew up in Toronto and as a result I think the world revolves around Toronto. It’s why everyone else in Canada hates us 🙂

      But seriously, if a housing crash does engulf this country, it’ll start in Toronto or Vancouver. Not KW. That’s why everyone’s watching those 2 markets.

    1. Ugh the debate on Vancouver’s housing market is unique in the racist undertones that have come out. I hope that burns out before it gets too bad. It’s an ugly side that I’d prefer not to associate with Canada.

      1. Eh. It’s a train wreck either way. I get why people want to conclude this is the root of the problem and even believe there’s a kernel of truth in there, but it also doesn’t really square with what I see out there. 95% of the people we know own their own homes and they’re almost all sub-40. And they live within the city limits. And they’re mostly not Chinese.

        My hatred of the whole thing is because as a mixed family I worry about the kids and the backlash that they can potentially face, which is made worse by the fact that I don’t directly face the same exposure myself.

  7. I’m in conflict with your prediction about the crash. My theory still holds that foreign interest is what’s keeping the pricing up, and the herd of Canadians followed.

    The people I know (in their early 30s) should have paid off their mortgage by now, and I don’t see them affected. They’re simply not going to sell, if a correction happens. But in Toronto, where prime locations are limited, I would find it hard for a ‘crash’ to happen. I can see a correction, handing-waving 10-20%, but a crash where everyone’s crying? That would be an investor’s heaven, and people I know would buying every deal possible. I would fly to Toronto to pick up some prime real estate.

    Like Australia, Hong Kong, and the US, foreign interest is a big backer in real estate prices. Hong Kong has been in a bull market for 18 years. In 10 year time frame, there was a 5-6x appreciation.

    As long as buyers/investors are aware of interest rate fluctuations, and understand he/she can undergo 1-2 years of tough times, it’s hard to lose on prime real estate (like downtown Toronto). If tough times happen, go against emotions and buy more.

    If buyers panic and sell in hard times, and can’t undergo downturns financially, it’s best they rent.

    1. One thing I’ve found increasingly astonishing is how many folks there are out there that could hypothetically have paid off houses but in reality have ever growing HELOCs to fuel lifestyle spending and other real estate purchases. I found it mind boggling, to be honest. In reality, I probably shouldn’t, because the overall debt figures that StatsCan produces bear it out, but I found it hard to rationalize how many people I would have otherwise considered to be ‘responsible’ are in this boat.

      There is definitely an element of foreign buying going on too, but it remains to be seen whether that is what is driving the market or whether it’s just a pile on. I’m inclined to believe the latter, because of overall debt figures and because I think that outsider speculation generally comes into play when the market is already frothy.

    2. Sure, if someone bought one house, diligently paid off their mortgage and built up equity, then yeah they’re fine.

      What I’m worried about are the bus drivers (!) who own multiple properties, the amateur speckers and flippers, and the idiots who overpaid in December just so they could “beat the B20.” Those people are fucked, and hopefully there are more “regular” homeowners than those people because I don’t want those people to swamp the market with listings and bring everyone else crashing down.

      1. but would you consider buying if the market goes crashing when those people decide to flood the market with listings, bringing down prices by 40%? I guess as long as you’re not part of the crash, life would be ok.

        It won’t be about homeownership or pride anymore, but simply an investment.

        1. It’s really about costs more than anything else. Ultimately, housing is a cost regardless of whether you rent or own. The question then becomes which costs more and how much you are or aren’t willing to pay for the trade offs of either scenario.

          Taking YVR as an example, even at current rent levels, it’s incredibly cheaper to rent than it is to own unless you continue to plan in huge capital gains forever into the future. Even then, in some cases it’s dubious. We pay about 11% of our gross income in rent and it hasn’t gone up in 1.5 years. Interest on the mortgage and lost earnings from a down payment more than cover the rent. This excludes maintenance, taxes, higher insurance costs, interest rate risk, non-diversification risk, lost income on monthly mortgage principle payments, etc.

          1. Yes, Vancouver is crazy. It’s so crazy I don’t know where to begin. Average salary may be around $60K. Shitty house=1.5 million.

            1500000/60000 =25 years to pay without food, shelter, living expense. Worse, omg, I can’t even find a job!

            Meanwhile, a teenager in Ferrari drive buy, and buys a couple of houses with cash, then goes shopping for a Bentley for winter. Then I go to Richmond, and English is not the first language, which is fine I guess, at least dim sum is good.

            I think I’ll rent in YVR if I can’t find a house under a mill.

  8. Thanks for the analysis Wanderer, I always enjoy your comments on the Canadian housing market.

    Personally I don’t expect to see a huge crash, but a long drawn-out slowdown. Perhaps a flat to slowly declining housing market for a decade.

    1. God I hope you’re right. That’s what I’m hoping for too.

      As much as I get irritated at the Home Boners, I don’t want everyone to start foreclosing. Then we’re all right fucked.

  9. “When you’re this indebted, with all your life savings gone, and a giant mortgage hanging over your head, you’d better not lose your fucking job or the entire house of cards comes crashing down.”

    Exactly. I think this is the #1 thing forgotten when it comes to homeownership. Some people are able to sell and recoup a good part of their money when they need, but in major economic circumstances, when everyone is selling, that usually is not an option. All it takes is a year, maybe two, but most often much less to wipe out those “forced savings” completely via bankruptcy.

    1. “forced savings.” Ha! I haven’t heard that term for a while.

      More like “forced savings into one asset that you can’t control when it crashes.” Guess that doesn’t roll off the tongue as well.

    2. When we bought our house back in 2011 I was really paranoid about any unforseen events that might cause us to foreclose. We played it really safe and always had enough savings to pay our expenses for a year in case we both lost our jobs and couldn’t find new ones. We also made sure we didn’t overspend when we bought so we could pay all of our expenses off of one income in case one of us lost our job or decided to go back to school. I did end up getting laid off and knowing that I was financially secure even if I didn’t find something new right away relieved a lot of the stress and panic of getting laid off and gave me time to explore my options rather than desperately grabbing the first offer that came along. I think my boss was more upset having to tell me I was getting laid off than I was to hear it!

      It’s a shame so many people don’t take these types of things into consideration when buying a home.

      1. Sorry to hear about your layoff, but glad you built in enough backup plans so you’re still OK.

        I also don’t understand how people can be so blind to anything going wrong, but that’s how people are with housing. They’re convinced nothing bad will ever happen.

  10. I’m not so sure about the success of the “wall building” myself, but then again that might be my general skepticism of the persistent meme that somehow ‘rational man’ will wean himself in time from the addictive bubble rush. 😉

    All Canadians are exposed to the housing market bubble via the Canada Housing and Mortgage Corporation (Canadian taxpayers being the backstop there). Also, at least in Ontario, multiple levels of government are at least somewhat addicted to what has been a rather spectacular increase in land transfer payment revenues (large enough these days to warrant their own revenue line!).

    Canadian bank revenue diversification may not be sufficient either…and Canadian car & other consumer loans and lines of credits are likely to freeze right around the same time as mortgages come to a screeching halt.

    The inevitable withdrawal may be rather surprisingly painful for a bunch of Canadians who thought that they didn’t have any housing exposure whatsoever.

    1. Yeah, that’s why I’ve pivoted my equity allocation out of Canada and into International. Call me unpatriotic if you want, but when the shit hits the fan in Canada my portfolio’s not getting burnt by you Home Boning idiots.

      1. You have no idea if a housing crisis will be signficant and if it will , to what extent the TSX to be impacted

        Market timing doesn’t work . Practice what you preach

        1. Hey Wanderer,

          What is your Canadian equity exposure right now?
          In your Investment Workshop, the target allocation is 20%

          I also thought about changing my canadian equity allocation (especially with the recent performance of the TSX vs World Equities). That being said, I also don’t believe in market timing, and will probably stay the course and keep my original allocation.

          1. I had the same question myself. If someone were to start the workshop now, what allocation would you recommend?

            Additionally, something I never quite understood, is why was Canadian equities ever at a 20% recommendation? What is so special about Canada to warrent such a high allocation? This seems to me like a huge home bias.

            Would you ever recommend a non-canadian to have a fifth of their portfolio in Canadian equities? The TSX is a small a heavily concentrated market. How come we give Japan, Germany, England, etc. combined(!) 16% , not to mention that China, India, Brazil, Russia, S. Korea get a combined 4% , but somehow Canada is worth 20%?
            Is this purely due to the preferential treatment of qualified dividends? The DAX alone significantly outperforms the TSX, and is a much more diverse market with better long term growth potential (in my mind).
            So why were we ever putting 20% to the TSX?

            1. Just to illustrate this, in the FTSE Developed-Ex-US index, here are some notable countries:

              Canada: 7.21%
              Australia: 6.1%
              Germany: 8.4%
              UK: 15.5%
              Japan: 22%
              Korea: 4.57%
              Switzerland: 7%

              (link to FTSE fact sheet:

              Now, clearly the US market gets it’s own allocation due to its size and importance to the global economy. But, if the developed index only weighs Canada at slightly under half of UK and significantly below Japan, and on par with Germany, Australia and Switzerland, why is there this recommendation from Canadian advisers (including blogs such as GreaterFool and CanadianCouchPotato) to put 20% allocation into Canadian equities? This looks like a blind home bias. What am I missing?

              1. Not to mention that if you do own real-estate in Canada you (probably) already have a very high proportion of your assets in this country. So a lot of people are already arguably over-weighted.

          2. Right now I’m at 15% Canadian, with the 5% reallocated towards REITs. That change was made mostly because I’m at a stage where I need income more than capital growth rather than actually “timing the market.”

            When I say pivot, I mean stealing maybe 5% from one ETF and giving it to another. Market timers try to jump in and out of cash, and THAT’s the practice I disagree with. But minor course corrections, yeah I do those, especially to adjust to my changing yield/volatility needs.

  11. Love following the blog, especially the home boner series (I’m guilty there). I just wanted to note a couple of things, and perhaps point out an area for clarification. Regarding B20, I believe it is incorrect to say that the mortgage rates have doubled. In fact, they have gone up thanks to rate increases by the Bank of Canada but B20 was not responsible. As you mentioned, B20 assesses buyers on their ability to pay current prime rates + 2%. Should their debt ratios be favourable, they can qualify. As I understand it, they are not, in fact, required to pay that. It’s just a stress test. It should also be noted that this stress test has been in place for home buyers who were purchasing insured (CMHC) homes; that is, buyers who were putting under 20% as down payment already had to undergo the stress test. With B20, uninsured buyers (those putting a 20% or more down payment) now also have to pass the stress test. There is a bit of a nuance there. I can’t estimate what actual impact this will have on the market as I don’t know what percentage of buyers were uninsured, and I’m not quite sure how financially sound buyers with such a high down payment (I would imagine better than average?). Overall, there may be a slowdown in the increase in housing prices, but I would not expect a significant drop (or any drop at all, actually).

    The second point has to do with the job losses in Ontario. While those job loss numbers are not good, Ontario’s economic up until this point had been quite strong. the unemployment rate stood at 5.8% just before these latest job numbers (not sure what it is now). This means there re opportunities for the newly unemployed to potentially find work as we are near full employment (5% is considered full employment). No doubt the job losses will have been painful to those who have experienced them, and the hike in the minimum wage will be hard on small businesses, but after a transition period, things should balance out. With low wage employees having more spending power, one would hope that they would inject more money into the local economy (who knows, maybe even houses haha), and businesses will do better. That’s what an economist would say, at least.

    Overall, while the housing situation is grim, we may not be THAT close to the brink at this time.

    I’d love to hear your views on this though. Cheers!

    1. The reason OSFI brought the hammer down on uninsured borrowers is because when they put the stress test in place for insured borrowers, suddenly things changed and there were a lot more uninsured borrowers than there had been previously. There’s a lot of ‘alternative lending’ going on either from parents or other forms of shadow lending. Long story short: it’s quite likely that the pool of new uninsured buyers may be more of a financial risk than the insured buyers.

    2. Correct, they don’t actually have to pay the higher stress test rates, but it does lower the amount people qualify for. That’s why people who JUST bought are going to get whacked by their house value lowering, but I don’t think this will cause a wave of foreclosures just yet. OSFI is trying to find a soft landing for the housing market, and this was their way of doing a controlled descent. Let’s hope they’re successful.

  12. That is not good to hear about Canadian mortgages and it’s potential effect on the economy. Does this change your investment strategy? Moving more assets to the U.S. or other markets?

    1. A little, but not much. I’ve shifted 5% of my 20% out of Canadian, but I don’t want to completely move out since that WOULD be market timing. Besides, the TSX has been undervalued lately because of fears of a housing crash rippling through to the financial markets, and I don’t personally believe that will actually happen.

  13. I’m in Sydney, Australia. I think the situation here is worse than Toronto! Income to debt here is probably close to 200%! With the introduction of various measures by regulators prices have started to drop slightly. However it’s a long way from becoming affordable. Let’s see what 2018/2019 holds for Canada and Australia.

  14. Hey Wanderer, comment w.r.t recourse loans, turns out the US had only 11 states with non-recourse loans and 39 with full recourse loans. Here’s some further interesting reading:


    A study by two Federal Reserve economists debunks the notion that the US has non-recourse loans. Out of the fifty states and D.C., 11 are non-recourse. All of the remaining 39 states are recourse. On top of this, in some of the non-recourse states, the first mortgage many be non-recourse, but all proceeding mortgages are recourse. Also, it often depends on the legalities and judges’ decisions as to whether a borrower is required to pay back the full value of the loan in a non-recourse state.

    Worse yet, some of the states that experienced the largest housing bubbles have recourse loans, for instance, Florida and Nevada, whereas California and Oregon, similarly affected, have non-recourse loans. Overall, there is no real difference between states that have recourse and non-recourse loans, apart from recourse borrowers who tend, on average, to hold onto their properties longer before defaulting.

    And the research from Richmond Federal Reserve:

    Seems that difference between is only really a matter of how long until the borrow defaults. Suggesting full-recourse borrowers hang on longer until they are in a worse position.

    As mentioned above, the debt-income in Aus approaches 200%! Crazy.

  15. Mortgages in Canada did not just double

    You don’t know understand b20 . To QUALIFy one must meet b20 stress test

    Consider having an expert proof read next time

  16. You missed a point

    In the US home owners further levered up their their indebtedness by taking second mortgages to pay off consumer spending How else does a cabbie afford a McMansion 3 new cars and a boat and Bitcoin? If you only have $5000 invested in the whole shooting match the rational choice is to drop the keys in the mailbox and walk away

  17. The other interesting thing I saw as an American homeowner during the housing crash was that the same family and friends who claimed renting was just throwing your money away because you are not building equity in a house started actively encouraging you to let your upside down house go into foreclosure because you are no longer building equity when the value is dropping so much because of the house flippers and under capitalized wannabe real estate empires are already in foreclosure in your neighborhood dragging down property values.

    So long as most buyers are buying a place they intend to personally live in for many years and employment is stable I don’t think a housing crash would be as severe even with higher debt levels.

    1. That’s the part I’m not convinced of. Vancouver and Toronto are rife with empty condo units sitting there owned by speckers and flippers. Not sure what happens when those people realize they’re underwater…

  18. I see this as a form of recurring social Darwinism. People that over-leverage and don’t know what they’re doing will experience more trouble when the housing market gravy train ends. Those that use their head when buying rather than emotion will do just fine. Part of maneuvering to success in life is outsmarting others around you, or at least not falling into the same traps that they do. I position myself so that whether housing goes up or down, I’m in a position to make money in real estate.

    1. I agree. I think using emotion is fine when buying a house only after you have achieved financial independence. Wondering what your strategy is. I buy under market value homes and rent them, as well as homes that need tlc to increase market value. If my rental houses go down or up in price they still pay me the same rent. My own home we did renovate, and more than doubled its value in two years.

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