canada’s housing, mortgage and credit markets department of finance october 2008 department of...
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Canada’s Housing, Mortgage and Credit Markets
Canada’s Housing, Mortgage and Credit Markets
Department of FinanceOctober 2008
Department of FinanceOctober 2008
2
Strong housing price growth in Canada followed a prolonged period of weakness leading to much lower levels than in the U.S. by the mid 2000s.
Source: Canadian Real Estate Association; S&P, Fiserv, and MacroMarkets LLC.
Existing Home PricesExisting Home Prices
Index = 100 in 1989Q1
U.S. S&P/Case-Shiller home price index
Canada
80
100
120
140
160
180
200
220
240
260
280
89Q1 91Q1 93Q1 95Q1 97Q1 99Q1 01Q1 03Q1 05Q1 07Q1
3
IMF: Divergence from price growth suggested by fundamentals (1997-2007)
IMF: Divergence from price growth suggested by fundamentals (1997-2007)
Source: IMF Fall 2008 World Economic Outlook. The IMF definition of fundamental factors includes: disposable income growth per capita, short- and long-term interest rates, credit growth, equity price growth and growth in the working population. Price growth that is not explained by these factors can be interpreted as a measure of over valuation and, therefore, the susceptibility of a correction in house prices.
According to the IMF, house price growth in Canada has been fully explained by fundamental factors.
Per cent
-10
0
10
20
30
40
Au
stria
Ge
rma
ny
Fin
lan
d
Ko
rea
Ca
na
da
Po
rtug
al
U.S
.
Ne
w
Ze
ala
nd
Italy
Gre
ec
e
Ne
the
rlan
ds
De
nm
ark
Ja
pa
n
Be
lgiu
m
Sp
ain
Sw
ed
en
Fra
nc
e
No
rwa
y
Au
stra
lia
U.K
.
Irela
nd
4
Mortgage debt relative to the value of housing has declined in Canada since 2001 - unlike the U.S.
Ratio of Mortgages to the Value of HousingRatio of Mortgages to the Value of Housing
Ratio
Canada
U.S.2008Q2: 0.55
2008Q2: 0.31
Source: Statistics Canada; U.S. Federal Reserve
0.25
0.3
0.35
0.4
0.45
0.5
0.55
0.6
2001Q1 2003Q1 2005Q1 2007Q1
5
The share of mortgages in arrears in Canada remains low, suggesting that Canadian households are better able to service their mortgages.
Percent of Mortgages in 90-day ArrearsPercent of Mortgages in 90-day Arrears
Canada
U.S.
Per cent
Source: Canadian Bankers’ Association; Bloomberg
08Q2: 4.5%
08Q2: 0.3%
0
1
2
3
4
5
2002Q1 2004Q1 2006Q1 2008Q1
Average Tier 1 Capital Ratios of Major Banks
AVG CDN Banks
AVG U.S. Banks
AVG U.K. Banks
AVG Euro Banks
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
11.00
Tie
r 1
Ca
pit
al
Ra
tio
7
Canadian Interest Rate Spreads
Source: Bloomberg
Banks' Cost of Funds vs. Government of Canada Banks' Cost of Funds vs. Government of Canada
0
25
50
75
100
125
150
175
200
225
250
275
300
325
350
Oct-00 May-01 Dec-01 Jul-02 Mar-03 Oct-03 May-04 Dec-04 Aug-05 Mar-06 Oct-06 May-07 Dec-07 Aug-08
basis points
Short term (3-month Bankers' Acceptance vs. T-Bill)
Medium term (Merrill Lynch Canadian Financial Index vs. GOC 5-year)