BMO Has Words Of Warning For Canadian Housing Market

BMO released another report today which appears to soften their once hardline stance that the Canadian real estate market was just going to “cool” with prices, sales and startups being essentially flat this year and likely next.

While BMO is still not forecasting a US style “crash-landing”, there is a possibility of a “Canadian-style housing crisis” occurring…

Below is an excerpt:

There is much to be learned from the U.S. experience. Canada has weathered the storm quite well, but an over-heated housing market could pose major problems in the future. As of the end of 2011, Canada’s severe mortgage delinquency rate was a Lilliputian 0.38% compared to the peak 5.02% rate in the U.S. In Ontario, it was a mere 0.28%, and it was a bit higher in British Columbia at 0.47%. Basically, Canadians rarely default on their mortgages.

Having said that, though, Canadians have never been so indebted. And, mortgage rates won’t stay low forever: they have already started to rise, which is why we recommend locking-in at today’s low rates. A Canadian-style housing crisis could occur because of potential over-leveraging on the developers side as condo development continues to dominate the Toronto and Vancouver markets. Delays in construction, caused by supply problems, the threat of strikes by city workers, or any other reason could cause cashstrapped developers and builders to abandon projects or look for alternative deep pockets.

The banks will be reticent to increase their exposure to builders and developers. Shocks to this market would have ripple effects throughout the economy at a time when federal and provincial governments are tightening their belts.

I second the government’s caution about household indebtedness and hope that the condo boom gradually dissipates. The multiple-bidding frenzy in the single-family market in some communities in Toronto is also worrying. I am not forecasting a crash landing, but it would be foolish to ignore the lessons learned south of the border.

Read the entire report here

Related Posts:
January 30, 2012- BMO: Housing Market A “Balloon”, Not A Bubble
January 27, 2012- BMO: CMHC is “Solid”
February 8, 2012- TD vs BMO: Two Different Takes on Housing Start Data
March 16, 2012- BMO Flip-Flops on Toronto Outlook

3 responses to “BMO Has Words Of Warning For Canadian Housing Market

  1. BMO has brought back the 2.99% five-year fixed…….this from…….

    The rate wars are over. Oops. Better hold that thought
    The instigator of the latest conflict, BMO, has effectively extended its infamous offer of 2.99 per cent on a five-year fixed.
    Consumers bringing in a written offer mailed to them by BMO now have until April to access that rate.
    BMO is suggesting that mailing will be limited to “clients and various people in certain areas that we thought might be a fit,” mortgage brokers, themselves are now reporting that they too have received the invitation card in the post.
    News of the extension is sending shock waves through the broker and banking communities and comes as both camps celebrate the end of this latest round of the rate wars.

  2. RBC & TD probably aren’t happy about that…

    I wonder if they’ll match that rate again with their 4-year fixed…even though they just raised their rates on Monday.

  3. There are many reports from various organizations, political actors or economists, that indicate the same. The question is why Canadian government does´t listen. Flaherty and his plan are a joke. Their “strategy” works just to support the banking sector. We are one of the most indebted nations in the world. Even the realtors are now aware of this situation (More Regulation in the Mortgage Market).
    We are being held hostages with our mortgages and our politicians are not doing anything.

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