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5 Comments Canada’s Housing Market: Self-Fulfilling Prophesy

Article written by Boris Bozic on the 24 Jan 2013 in Current Events,Mortgage

canada-housing-correction-crashAs I mentioned in my last blog, the purpose of my visit to Mexico last week  was to attend the TMG conference.  I was asked to take part on a lender panel, where I and a number of my esteemed lender colleagues,  would answer questions about our industry.  A question that was put forth to me was, “do I believe that regulators would make further changes to mortgage rules in 2013?”  My crystal ball was a little foggy that morning, it could have been the tequila, so I applied reasoning when answering.  I answered, “no “.  No one can say with absolute certainty what the government may or may not do.  But today’s reality leads me to believe that any further changes to mortgage rules may create unintended consequences, which could result in harming our economy even further.   My view is that of CAAMP’S, the most recent changes to mortgages rules may have over reached.  If the most recent changes to mortgage rules was intended to slow down home sales, then one would have to say mission accomplished.  Due to all the changes to mortgage rules over the last three years all of us are feeling an impact in some form or another.  This is the new norm, and time will tell if regulators went too far this time.  So, I’m less concerned about further changes to mortgage rules in the immediate future than I am about rhetoric.

There’s a good article in the Globe and Mail about what could possibly happen to the Canadian housing market when you cry wolf enough times.  Consumer psyche is a fragile thing.  If people in authority, and those supposedly in the know, say it often enough consumers will deem it to be so.  Good evidence of this came from the most recent Maritz survey on behalf of CAAMP.   Over sixty per cent of the general population believe Canadians have taken on too much debt.  Yet close to seventy per cent of the respondents do not believe it applies to them.  So how did they come to formulate this opinion?  Did they conduct a survey in their neighborhood?  Are they all qualified economists?  They form their opinion based on headlines,  and those that are responsible for fanning the flames.  It’s the rhetoric that I’m most concerned about now.  The mind is a powerful thing, and those in sales know how import their psyche is when it comes to success and failure.  Never would I suggest to ignore the facts as it relates to business.  That’s suicide.  Those of us in the industry can separate facts from hyperbole.  But does the consumer do the same?  Of course not.  They’ll form their opinion on sound bites and snippets of information.  Thus my concern about rhetoric, especially coming from those who have fallen in love with the sound of their own voice.

Here’s the link to the Globe and Mail article, it’s a good read. 

Until next time,



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Daryl Harris, AMP @wpgsbestmtg Website Reply

Great post Boris, doesn’t look like the Tequila affected your judgement at all, we can clearly see that government and Bank of Canada are watching the housing market very closely…stay tuned.

Lance Reply

It’s been my long-held belief that we need to start laying charges against journalists. Now, I’m a huge supporter of Free Speech, but I also believe that folks in a position of trust have a Fiduciary Duty, and misleading the public is a Breach of Trust. Convict even one journalist and the rest will start acting more reasonsibly. The media loves to hold everyone to account but themselves. The media loves to see everyone and everything regulated – except them!!
Time to change that. We see what’s going on in the US with misinformation, and we’re heading in that same direction. Time for a course correction. Cheers!!

Rick Robertson AMP @bestbrokertools Website Reply

Thanks Boris, I believe that Ottawa had a good understanding of where the realestate market was already heading and they took the best action they could to soften the landing. I feel the source of the mis-information ‘virus’ is coming from the press, and some brokers and Realtors are infecting the general populations view through all the tweets of new headlines. Far too much of the social media content is attention getting headlines being passed along without actually reading and understanding the information. Example – The pres far too often plays up Canadian Household Debt 150% of income. That INCLUDES mortgage debt. In perspective, a household with $100k in income and $150k mortgage is not reaaly a bad situation. Let’s all not just pass on headlines because we think we need to tweet something today.

Andrew Furino @Twitter ID Website Reply

Perhaps it may be best to replace rhetoric with hyperbole. Headlines sell newspapers and attract readers. I am sure the data being reported is technically correct (they have legal departments) but is it the truth? Canada was at the same risk as the US mortgage market screamed headlines in 2009…technically correct as anything is possible but far form the truth. I have been telling every one I can (both on our team and my peers) that we must tell our clients why there is a reason to be optimistic about the future. Not pie in the sky optimism but optimism supported by fundamental truths supported by factual information. Not a newspaper screamed headline. Not an opposition politician trying to score political points by blowing a minor fact out of proportion. Using common sense about your personal financial situation will always lead to the right decision. Some one needs to be positive because if all we did was take media reports to heart you might as well all watch every episode the new reality TV series “Doomsday Preppers” and prepare for Armageddon.

Paolo Di Petta @dipettamortgage Website Reply

My question is why no one seemed to be sounding the bells when the media was talking up the market. For years all we heard about was the infallibility of the Canada’s Housing Market, and how we were so much better off than our american counterparts.

All this, while our debt-to-income ratio soared to 165%. Low interest and lax lending rules should mean people take advantage of them to pay down debt, right? Unfortunately the opposite has happened. That’s right, lowest historical interest rates, and highest historical debt-ratio. All this when debt should be easiest to pay down.

Low rates -> artificial affordability -> increased market competition from marginal buyers -> inflated market that will collapse if rates increase & rules tighten further.

Easy access to cheap money has driven people towards a payment-affordability based mentality instead of forward thinking one that focuses on the lifetime cost of acquisition/ownership.

THAT’S why housing isn’t affordable and our market is so out of whack and headed for a massive correction, NOT the rule changes. We shouldn’t have every had 40, 35 or 30 year amortizations to begin with.

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