I think it's amazing that two countries attached to each other by a 5,525 mile line can be so different. Canada and the United States: with Canada being the largest nation in the world sharing a border with only one country and it's also the longest un-militarized border in the world.
In October, 2008, in the midst of the financial crisis in the US, the World Economic Forum proclaimed that Canada had the soundest banking system in the world. As caring neighbors to the North (and Canada is always caring! lol) we watched in horror as the US financial and housing market collapsed. In Canada, we were complaining about high income taxes, loss of jobs, our involvement in the war and a rising national deficit, but our concerns paled in comparison to the concerns of our neighboring Americans.
Our Country fell into the same recession as everyone else. Jobs were lost in all sectors. People lost their life savings as the stock market crashed. However, at the end of the financial tsunami, the majority of Canadians found that it was life as usual. Yes, our Real Estate prices had taken a bit of a hit, and lending criteria had tightened, but we didn't have the massive foreclosure rate that our counterparts south of the border were experiencing.
The internet has a tendency to blend our two countries together. homogenizing us into one North American market; it's apparent when I shop for an hour online, get to the check out and discover that wherever I've been shopping doesn't ship to Canada.
In the land of Real Estate, things are very different. Dean Baker from the Washington based Centre for Economic and Policy Research recently stated that he see's no reason why Canada's housing prices are 50% higher than those in the US...and a collapse of our housing market is predictable. He also predicts that we can see a drop in housing prices by 25 to 30% if the interest rate climbs by 2 points. Now, Mr. Baker is a highly acclaimed and respected Economist and I certainly can't be a match to his expertise with my a handful of University Economic courses, but after 35 years of finance and real estate experience, I beg to differ with him on this one.
Lets look at some facts about Canada. Did you know.....
•· That the population of New York City in 2005 was 8,391.197 more than the entire population of the Province of Quebec...which was 7,856,881?
•· New York City in 2006 equaled the sum of the 2006 population of the top 8 Cities in Canada, Toronto, Montreal, Calgary, Ottawa, Edmonton, Mississauga, Winnepeg and Vancouver.
•· According to Statistics Canada, in 2006, 99% of the population of Canada lived on 5% of Canada's soil.
•· Canada's entire population is equivalent to the population of the top 23 cities in the USA or the State of California.
Now lets look at how much cheaper housing in Canada really is! I live in Hamilton, Ontario, an urban centre with a population of approximately half a million people. We are about 20 miles to the south of Toronto, Canada's largest city. A 2010 report by the Hamilton Community Foundation gives a clearer picture of the demographics.
· Hamilton's average house price is about three-and-a-half times average family income, lower than provincial and national averages.
· Almost 60 percent of Hamilton adults are overweight or obese - an increase of almost 10 percentage points since 2001 and currently almost 10 percentage points higher than the provincial average.
· Library use in Hamilton increased 28 percent between 2007 and 2009, and is higher than the average for large municipal libraries in Ontario. More Hamiltonians also owned a library card last year than their counterparts across the province.
· Hamiltonians aged 25-64 are less likely to have completed post-secondary education than the provincial average.
· Voter turnout in Hamilton is low, particularly in municipal elections, where only 38 percent voted in 2006, three percentage points below the provincial average. Turnout also varies dramatically by neighbourhood, ranging from above 75 percent in some to below 25 percent in others in the 2008 federal election.
So, to sum it up, Hamilton is home to a lot of overweight, low educated people who don't even exercise their rear ends to get out and vote! But, we sure like getting library cards!
The average household income in Hamilton in 2007 was $64,600. and the average home price was $166,783. 2009 Average rents in Hamilton show $831 for a 2 bedroom and $1022 for a 3 bedroom apartment/townhome/house and there was a healthy 4% vacancy rate. One difference between a city the size of Hamilton and a US counterpart with similar population, such as Kansas is the average household income. In 2009 Hamilton was $64,900 and in Kansas it was 47,817, thus people in Kansas simply can't pay as much for a house...therefore, lower average prices.
In 2010, Kansas increased it's minimum wage to 7.25 an hour. In Ontario, Canada, the minimum wage went up to 10.25 an hour, and students minimum wage is 9.60 an hour.
I always refer to the "rental factor" to home prices. That is that no one will pay more for a house if their monthly interest payments and taxes are more than what it would cost to rent it. Why would they? With that being said, an increase of 2 % in prime interest rates that Mr. Baker warns of, would mean that the payments on the average $166,000 Hamilton house, with a 95% loan to value mortgage of $157,700, would increase the 25 year amortized payments from $746.00 a month to $917.00, approximately $150.00 a month; still well below what they could rent the house for! Plus after 5 years, the homeowners will have paid their mortgage down by $18,000.00. Two people working at 2 minimum wage jobs in Ontario will earn approximately $42,000 a year. They would be qualified to spend $12,600 a year on housing, which would allow them to buy a home for approximately $160,000, with a 4 %, 5 year termed, 25 year amortized mortgage. It would be cheaper than rent.
So Mr. Baker, I do not believe you are going to win an award for this prediction. Why? Because we have higher minimum wages in Canada, it costs much more to build a house here. Also, we only live on 5 % of our land...even though we have more land...it's much more habitable in the South, so the raw land values near our urban centres will continue to rise. We also have very strict building codes...the majority of our homes have full basements and lots of insulation, plus central heating and cooling systems. This adds a lot of cost to the price of a regular home.
As a Canadian, we pay up front by way of taxes for our social assistance and health care, and the lowest minimum wage in the whole Country is $8.00 an hour. Even though our Health Care system has it's issues, Canadians can rest assured that they never have to worry about spending their mortgage payment in the hospital emergency room. As a Canadian we have a strict Bank Act and lending criteria that secures affordability for homeowners. The market may go up and down 10 or 20 percent, but it will stay stable.
Canada is a very special and unique Country. We may be viewed as socialist...but when I hear about the woes of property owners south of the border, my heart aches. When I witnessed my Grandparents from California spend their entire life savings for cancer treatments and "end of life" care, my heart ached. Perhaps, the USA could learn a few things from Canada. In our real estate market, we race to sell Bank Foreclosures and we always get paid. They fly off the market like hotcakes. So, it's hard to understand the "short sale" market, people living in their homes for a year or two without making a mortgage payment and everything else that you're experiencing.
We are simple...and our banks are simple. Miss the first month, get a reminder, miss the second payment get a demand letter, and miss the 3rd, get notice to be out in 45 days. Day 45, the Sheriff comes to secure the house. 45 days later, the house is on the market by the bank. If it was a high ratio mortgage, Canada Mortgage and Housing, Genworth, or AIG gives the bank the full value of the mortgage. If it was less than 80% to value, there was no insurance, and the bank takes its portion plus all their expenses and any surplus goes back to the owner. The whole system works like a charm.
Mr. Baker, you forget how different Canada really is.