The 2008 meltdown in the U.S. housing market has left investors and potential homeowners in the U.S., and all around the world, nursing their burns and fearing reentry into the real estate market. How can the residents of Markham and the surrounding GTA trust that their real estate investment won’t suffer from a severe crash ? While the U.S. has failed to embrace reform, Canada has been and remains steady due to a concerted, purposeful policy to protect Canadian homeowners. The safety of the Canadian housing market is no accident as there are many differences to consider.
In contrast to the U.S., Canada does not encourage home ownership for all. Rather, the CMHC, or Canada Mortgage and Housing Corporation, leaves it to government programs to house Canadians that cannot afford rent or a mortgage. It is the home-ownership-for-all U.S. goal that led to the eventual creation of the large subprime loan market. Entities like Fannie Mae and Freddie Mac were directed to pressure financial organizations through loan guarantees to make loans available to more borrowers. Some borrowers were able to get massive loans with little to no income, and little to no down payment. As the economy slowed, more and more of these bad loans failed.
The CMHC is Canada’s premier provider of mortgage loan insurance, mortgage-backed securities, housing policy and programs, and housing research protecting the Canadian housing market from irreversible harm, as seen in the U.S. The CMHC has stricter mortgage standards that prevent a subprime market from taking hold. It is the subprime loan market, along with complex financial products, created precisely to make home ownership available to even the very poor that eventually led to the high foreclosure rate and falling house prices. The big difference is that most Canadian loan originators, such as banks, do not package mortgages into investment vehicles to be sold. They make and keep the loan. Of course, the incentive to make only good loans is a natural part of that process. It is this cause and effect factor that keeps Markham homeowners protected when they invest in property. When Canadian home loans are sold as investments, they are much more strictly regulated before being guaranteed by the CMHC, which can help keep the market steady in an economic downturn.
Another important factor to consider is the fact that the U.S. allows most homeowners to escape financial responsibility through the foreclosure process. When a homeowner can walk away rather than suffer financial hardship through the foreclosure process, there is less incentive to refinance an underwater mortgage. This leaves banks no real way to collect losses except to take the property. In Markham, and all through Canada, borrowers are on the line for the costs of a "power of sale" home and that creates more incentive to find a way to stay in the home and pay the mortgage even if the home is not valued as high as the loan.
The Canadian housing market is a smart investment as there are strong, sensible regulations to keep the market from suffering the same fate as the U.S. Canada has learned the lessons and has a plan for prevention in place and has incentives pointed in the right direction. The incentives create an environment in which the loan makers and the loan takers are encouraged to do the right thing from start to finish. This makes Canadian real estate a good buy.