Our dollar is doing well and the Canadian Real Estate market is booming. Knowing intuitively that things tend to balance themselves out, and that the U.S. Real Estate was doing well before crashing, well, it’s hard not to worry a bit. Are we safe from incurring the same subprime mortgage meltdown fate as the US?

According to Linda Mitchell in last Thursday’s Toronto Metro, the answer is a hearty, “highly unlikely”. The Canadian Real Estate market is protected by our hefty industry regulations.

First, subprime mortgages are rare in Canada. They are “unconventional mortgages offered for a limited time at rates below prime, after which they jump to higher than prime”. They are for people who are considered `high risk’ to most conventional lenders, like banks.

What happened in the U.S.:

• Lax regulations resulted in 20% of all mortgages were subprime in 2007 compared to our 5% here in Canada.
• U.S. subprime-focused companies lent more than the value of the house – they convinced subprime borrowers that when interest rates jumped, their home would also have increased in value so they could refinance.
• U.S. housing prices started to fall and mortgage interest rates skyrocketed into the double digits.
• The 2007 subprime mortgage financial crisis: borrowers couldn’t pay, foreclosures and mortgage delinquencies abounded, and subprime mortgage lenders lost their shirts.

In Canada, most of our lending stays within prime. The few mortgages that are a gamble, “considered high-ratio, or obtained with less than 20 per cent down,” must be backed up with mortgage insurance, like the type offered by CMHC. In addition, we cannot finance more than 100% of our Canadian real estate value.

What does this all mean to Canadians who have a little extra money? That the Canadian real estate market is a fairly good bet and now is a great time to buy or sell a house, condo or commercial property.

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