There was an interesting report by Merrill Lynch that Canada could be facing a similar real estate/financial crash that the U.S is facing right now.  The rationale being that Canadians have turned from being savers to spenders with an increasing net household deficit.  While I agree that the real estate market in Canada is due for a healthy correction, will the correction lead to significant foreclosures, thus resulting in our banking system crashing?

What had me confused about the sheer number of people declaring foreclosure in the U.S, was WHY?  In a nutshell, the reason is that people gave into the American Dream of owning a house without having the ability to afford it.  The teaser mortgage rates that they were given would temporarily allow them to make their payments.  While borrowers knew that eventually the mortgages rates (thus payments) would go higher, most expected that real estate would keep increasing, thus refinancing when they needed to.

What happened?  The real estate market started getting more houses for sale than there were buyers, thus decreasing values.  This lead to a chain reaction of borrowers not being able to refinance at the higher predicted price which in turn resulted in foreclosures due to the inability to make the mortgage payments.  With a high number of foreclosures, the lenders now have a bunch of non performing debt on their books with few buyers out there.  If you have enough upside down mortgages on the books, it can turn ugly pretty quick.  This is why the big mortgage companies in the U.S are looking for either bankruptcy protection or government help.

So, back to the question at hand, could this real estate crash/foreclosure mess happen in Canada?  I believe that home values can definitely decrease due to supply/demand factors, but I don’t believe that many Canadians depend on their home values or refinancing to make their next payment.  In addition, there aren’t that many “teaser/subprime” mortgage products offered to Canadians.

What do you think?  Do you think Canada could face what the U.S real estate/financial market is going through now?


  1. Harvo on November 19, 2008 at 12:04 pm

    For those of you still reading this thread (that I have not annoyed to the point of alienation) I have another link from today’s Globe that substantiates my argument. We all know that fossil fuel and combustion is not going away tomorrow but I think many of us agree that it will not be a profitable commodity within 5-10 years. Smart investors are the ones who recognize trends before the masses catch on. Usually once a stock or industry is hot it is too late to make more than a slightly above average return. I am by no means an environmentalist and by every means a capitalist but I can see that the ‘green’ trend is not going to die. There is going to be boatloads of money to be made in the very near future from all sources of ‘green’ advancements. Be it wind, solar, auto, paperless documentation, synthetic polymers, waste incineration, water purification and desalination, electricity decentralization (homes producing their own power), and so on. There is where the world is headed. It is going to have fast and furiously. I know that stocks in oil, coal and utility companies have reached their tipping point and are going to be in a ‘sell’ position really soon. if you want to be ahead of the trend I suggest taking a close look at your portfolio and consider a redistribution of assets.

  2. Harvo on November 23, 2008 at 10:34 am

    Here is the answer to the Big 3 crisis. Start producing domestic versions of these:

  3. Scott on November 23, 2008 at 1:31 pm

    Got one thing to say about Haro’s predictions:

    “…paperless documentation…”

    Wasn’t that supposed to have already happened with the magical invent of the might computer oh so many years ago? Now we use even MORE paper!

    Just look at VHS vs Betamax for another example. The better technology LOST! Even though the professionals continued to use Beta, the masses glommed onto the weaker of the two technologies (for various reasons).

    The world may be headed (fast or slow) toward all this new technology, be it ‘green’ and/or otherwise, but don’t be so sure that their reality will equal the theorized predictions.

    And, as usual in the human world, everyone will NOT be on the same page at the same time. This will be sure to stall the process of progression in said techs globally.

  4. Harvo on November 23, 2008 at 2:13 pm


    You make some excellent points but the thing that you have failed to address is something called the “knowledge doubling curve.” This is the phenomena that measures how quickly the world doubles its knowledge. The time it takes for knowledge to double started out as a linear rate and is now progressing at an exponential rate. Obviously this is due to the Internet…similar to the way that you and I are conversing right now. Just 10 years ago we would have no way of even knowing each other existed unless we somehow happened to meet by chance. Now we can share ideas and thoughts within seconds….and thus share knowledge. It is for this very reason that the world will transform itself (good and bad) very quickly. Even in the mid-eighties when the VHS vs. Beta thing happened it was not easy to get accurate information because we relied on print media which made us more susceptible to marketing lies. Fast forward to the HD vs. Blu-ray debate of today. The world has decided that neither will survive because renting or buying a physical DVD of any kind makes no sense when we can stream 1080p though our television. I don’t think anyone thinks that Blockbuster has any kind of future and I would be surprised if we don’t see it collapse for good within the next year or 2….being replaced by Netflix and its soon to be competitors.

    A technically you are correct that the world consumes more paper than it did in the past but this stat is totally flawed. Being a former Xerox employee I can tell you that the peak year for per capita paper consumption was in 2000…but for some reason we seem to have actually plateaued since then and consumption is slowly decreasing. This is only because developing countries are just catching up. All across the industrialized world newspapers are folding or going paperless. The Christian Science Monitor just announced that it was going paperless…so I am sure others will follow.

  5. SP on December 29, 2008 at 12:54 am

    It is wishful thinking for those who think that Canada will not experience a real estate crash (or a slowdown if you prefer). There are over-capacities everywhere in real estate in Canada for these past ten years mainly as a result of the commodity boom, which has been decimated in the past year. The manufacturing sector in Ontario is also now officially obliterated. Since Canadians choose to tie their economy (and incidentally their jobs) directly to the US market instead of diversity into the global market, Canada will suffer economically as a result of the looming US depression, If you got layoff or at risk of soon getting layoff and still think about purchasing a home, you must be coming from Mars (or without any financial sense). With no demand and plenty of existing and new supply, the market will go down if not crash. Lesson for Canada, it is wiser to diversity into the global market instead of fully depending on the US, which by every measures is on a historical decline.

  6. Sean on March 1, 2009 at 3:13 pm

    Like I was saying in the beggining of this thread! GM is gone, south Oshawa is screwed! if ya don’t think this is true then why is there a 500% increse in the amount of property available on MLS? and there not selling! Vancouver Island is showing the same things, in fact, i have allready noted a 20% avr. price decrease on Vancouver Island allone! and this is just the beggining, what’s up next? lol, 1 million people in ontario comming off UI all at roughly the same time should be interesting, baby boomers packin up and buyin extremely cheap retirement packages in southern USA is another hard fact! dont think people will leave? I beg to differ! what you would pay for out here (ex. 1 acre water front cottage with boat and dock in canada is about 240k, in southern US you can pick up the same sorta deal for about 50k !

  7. Sean on March 1, 2009 at 3:25 pm

    another point is that canada has in the past and is still very dependant on our manufactureing, export industries. seeing how international trade is on the brink of destruction (at least fore a few years) I don’t see how our small industry sector will survive? the larger industries could retool and commit to an “in demand” or local market but that dosn’t seem likely, well atleast not on a national or large scale.

  8. Some dude on February 28, 2010 at 11:53 am

    Every mortage in canada is a teaser: 5 year agreement only. In the states you can lock in mortage rates for 30 years which gives more stability. Look what happened there. The big melt down is a couple years away when all mortgages will reset. Interest rates will rise. House values fall. Mortgage goes upside down. Need for more money down at renewal. Can’t afford payments… bankrupt. It is a deck of cards when housing prices average 6 times income (versus historical 3 times income). I am trying to sell my house before that happens.

  9. Me on February 28, 2010 at 12:59 pm

    We now know that the real estate market in Canada is going to crash. Even the Feds have warned us that this is pending. If your home is worth 70% of its value in 5 years you will have weathered the storm better than most Canadians….especially those in the hyper-inflated markets of Toronto, Calgary and Vancouver.

  10. Fred on June 6, 2010 at 3:10 pm

    Manufacturing in Canada is toast and will never return. The HST hits in July and interest rates have only one way to go.

    Record low interest rates have fueled the re market and those new buyers who took the free money will pay the price. This time next year will see buyers wishing they hadn’t taken on dept.

    Maybe there will be some bargains just over the horizon.

  11. Michel on September 3, 2010 at 1:03 pm

    The real estate of Canada will crash just like the states the higher the housing prices the bigger the crash the only difference is the banks wont go under due to central morgages program but don’t be fooled it will appen and soon the housing market will crash every where in Canada . Most people owe more on there morgage than when they first both there homes . Worst of all Canadian owes between 3 to 7 times there yearly income when it should be 1 time your yearly income . The interest rates will go up because that is the only way to get out of a recession and yes we are still in a recession soon to be a depression .

    Do your research we are right now at the same point of the great depression of 1929 just about one year before the great depression they were in the same
    place in he market , great way to find is do a silver to copper ratio or gold to copper or dow to silver or dollar to silver . I,ve been in real estate for the last
    15 years and some places like Vancouver will colapsse by 80% Toronto 40 to 50% Ottawa 20 to 30 % in the first crash and more will come .

  12. Calmness on October 14, 2010 at 6:32 pm

    First off, your decision to buy or sell is not only dictated by the current market but by future markets and the length at which you will let your investments sit. If you buy a house now for $110,000 dollars in Winnipeg and two to three years from now it is only worth $70,000 dollars and you don’t sell it, do you loose anything? The answer is simply no.

    Inflation dictates that the value of your home will most likely go up over the long term. So if you are getting into the rental business and planning on holding onto these homes over 25 years don’t worry about it, you can keep draining the equity out of the home during this period and re-investing it, not to mention it will be your tennant repaying the $30,000 dollars that you lost!

    Some spectators would say that the reduction in house prices would reduce rental rates, wrong again. First off even if the prices of houses drop, the interest rates are increasing, so a cheaper home may actually be more expensive the a more expensive one was over the last 10 years. On top of this if the real estate market is going to collapse and you haven’t over extended yourself all those individuals who have absoulutely horrible credit can’t buy these cheaper homes and guess what rentals win again. Just because you lose your house, doesn’t mean you lose your job.

    Now for the real concern in relation to the real estate market. THE RETIREMENT OF THE BABY BOOMERS. You know all those people who bought those really big houses and are getting ready to sell them and over flood the market in a time when younger people are not in the financial position to buy them. Yes this could be a problem, in the short run.

    First off if the prices of homes are plummetting then chances are boomers will hold onto them for as long as they can, but over the next 15 years as the rest of the boomers retire do not expect to make money in the executive class real estate (a.k.a. your rich daddy’s earning wage), however a slight correction. Yet again rental property will be okay especially since everyone is going to be down sizing.

    Lastly, for those of you who are young, remember when the stock market dived and everyone told you not to buy when it was at rock bottom, well they are WRONG! The depression of the 30s made some of the richest families that exist today, however, they were young not old people then. Invest wisely and ensure that you can suffer short term losses and invest like crazy because in twenty years when the market has stabilized and inflation has increased the value of everything you will be laughing, cheers.

  13. Harv on October 15, 2010 at 10:47 am

    Great comment Calmness!

  14. Michel on October 17, 2010 at 6:14 pm

    100% SURE Canadian’s owe 3 to 5 five time’s there yearly salery should not be more than 1 year salery just think interest rates as to go up a five year mortgage
    should and will be around 12% its like laws of physics if you want a strong economie we need to have higher interest rates .
    Lest just think for a minute if interest rates stays low like they are right now all penssion funds will go bankrupt including our C.P.P. . There is a colapse of real estate coming for a lot of other reson’s to like the economie right now there will be
    more and more factories closing because of the U.S. are not bying anything since there economie is worst then ours and there dollar is loosing value every day and our dollar will be higher very very soon . When everyone starts to sell there homes to try and make a quick $$$$ homes will stop selling because in these last few years homes were sold for 3 to 6% more in one year but that will end very soon . I was calculating when recession started and alot of factory’s closed its about 12 to 18 months ago so that mean’s that people are loosing there U.I. or allready did . Most started working at a minimum wage job or on welfare but these people don’t count as unemployed . Now is the time where these people stated to put there homes for sale but thats just the begginning.

  15. Moti on January 28, 2013 at 2:46 pm

    Hi Frugal,

    I’m still here, still hooked!
    Your blog post is from 2008. What are your views now?

    Given that its 2012, there was no real meltdown. and that the government is not raising rates this year it seems, are you not concerned at the amazingly high price of real estate in canada? is there a price correction looming i are we at the height of when apple was poised to break 700 and it came down to 620…

    what may a potential first time buyers (aka me?) face?. With prices where they are right now, i would have to get a mortgage thats 5 times my gross annual.

  16. Gates VP on February 1, 2013 at 4:20 pm

    @Moti: there are really only three ways this can happen.

    1. House prices come down (fast or slow).
    2. Incomes rise to make houses more affordable.
    3. House prices stay permanently more expensive and a generation of high income earners live without ever being home owners.

    I think #3 is highly unlikely, but houses could stay very expensive for several years. Honestly, I think the baby boomers are key. We have an entire generation of empty nesters living in family homes and they either need to downsize or die off. In either case, more houses come onto the market.

    #2 is going to be hard as many Canadians already have record high income levels. The Median household income in Winnipeg is almost 2x that of the Kansas City. That’s a big gap for two first world countries, Canadian incomes are really quite high.

    #1 is the likely route. Housing prices are going to drop slowly over the next decade or so. Nobody wants them to drop fast, that’s too dangerous, but everybody needs those prices to drop slowly because house prices at 4x to 5x income are just too high. Especially in Canada where property taxes tend to be higher (thanks snow removal).

    Here’s my litmus test.

    I have a buddy that’s very frugal. He works a high-paid professional engineering job (university degree, in-demand field, relatively stable). His wife works a nursing job. Both late 20s. They have a brand new kid. They both live very frugally, no student loans, no expensive vices, operate on cash.

    They are the picture perfect “starter home” family.

    They live in Edmonton, and they don’t have money for a home. All of their adult lives they have basically watched home prices pull away faster than they possibly save for a down payment. When those two can afford a home, then the tide is turning. Until then, housing is just over-priced and will be pulled downward.

  17. Juana on August 18, 2016 at 10:13 pm

    In September 2003, fie years before this article was written, the average price of a house in the Saanich East area of Greater Victoria, BC was $360K and by the time the article was published this had grown to $630K – representing a 75% price increase over 5 years. We bought our home for $660 in the spring of 2013 and we sold it recently for $1M – representing an increase of 52% over 3 years. A friend from Los Angeles pointed out that comparatively it’d still be insanely cheap here even if the US dollar was at par.

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