One More Reason We’re Not the States
At the height of our housing boom two years, or even just a year ago, people were panicked that we were “just like the States.” Seeing how our neighbours down south borrowed themselves into oblivion, only to find at the end of it all that they could’t afford it and it collapsed their economy really did a number on many of us. Lenders started bringing in the reigns, borrowing rules were tightened, and people were worried. Worried that the same fate was our destiny, and that we would soon find ourselves in financial ruin. There are many reasons though that we’re not at all like the States, and now here’s one more of them.
Just before the housing market fell in on the United States, it’s estimated that their housing was overpriced by about 28 per cent. That was a huge part of the problem, not only because it led to people borrowing more money than they probably needed, but also because it was one of the big reasons for so many underwater mortgages just after the stock market crashed. Home prices plummeted, and those who bought properties well over their value found that they owed more on their home than they had equity in it.
These plunging values helped decimate the housing market in the United States, and they’re one reason why the housing market here isn’t anything like that of the States.
As it stands right now, Canadian home prices are about 10 per cent their fair market value, says Sal Guaterieri, economist at BMO Capital Markets. That is high, and a historical one too, but it’s not nearly as bad as what was seen in the States before their downfall. There, home prices were about 28 per cent higher than fair market value, making the drop that much harder felt once it finally hit. And while it can be argued that we’re still way over value, especially in markets that are still super hot such as Toronto and Victoria, they’re not nearly as high as they were down South.
What’s more is that our housing prices are still set to drop, some think as much as 10 to 15 per cent, which would put our housing values at just about on par with fair market value. That estimation of drops in value is high, many experts and analysts have warned, but even with just a slight drop, the decline in prices will still be nothing compared to what was seen in the States before they crashed. And that’s exactly the reason we’re giving today for why we’re nothing at all like the States.