February 9, 2012
B.C. vulnerable as 'nation's weak spot'
"Canada's housing market is not a bubble, it's a balloon. And unlike the catastrophic decline the U.S. housing market experienced in 2008, the market in Canada will deflate slowly rather than pop, according to a report by BMO Capital Markets".
In Vancouver, though, where house prices have gone up 159 per cent in the last 10 years - compared to 104 per cent nationally - the ratio of price to income is 10, nearly double what it was a decade ago. Read the full article here.
According to documents obtained by Bloomberg under freedom of information law request from the Office of the Superintendent of Financial Institutions, Banks and other lenders are becoming "increasingly liberal" with mortgages and home-equity credit lines that don't require individuals to prove their income.
Bloomberg reported, "Non-income qualified" lending is one of the issues to be considered by OSFI's "emerging-risk committee."
Leaning too hard on lending could sink the housing market
Canadian Banks will have major concerns on tightening lending too much on "equity lending" and mortgages provided to "New Immigrants". Presently, these borrowers do not need to provide proof of "sufficient income" to qualify for 65%/70% financing. Other borrowers have to provide proof that their mortgage payments are under 40% of their total financial obligations.
It will be a fine balance that has to be work out on the new lending guidelines (if any) between the Government and Canadian Banks for equity home financing. The tightening to deflat the high home prices may be too late, as any price correction from current level especially in Greater Vancouver in the magnitude of 20% or 25% will seriously damage the B.C. economy.
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