Canada?s housing bubble is starting to burst
Soaring home prices, subprime lending, and huge debt levels have Canada on thin ice Canada escaped the global financial crisis in 2008 unscathed relative to much of the developed world, but after 15 years of virtually uninterrupted home price appreciation, America?s neighbor to the north might be cooking up a financial crisis of its own.
Loose lending has helped create a housing bubble to rival that of the U.S. in 2006, and with household debt in Canada being among the highest in the world, Canadians have little room in their budgets to absorb rising housing costs.
The next year will be telling because unlike in the U.S., the interest rates on most mortgages in Canada reset to the current rate every five years, and 47 percent of Canadian mortgages will ?reset? within the next year. While the Bank of Canada expects the reset rates to be on par with what they were five years ago, even a slight rise could put Canadians with a high amount of debt at risk of default. ?We?re basically in a correction now, which most people believe will be a soft landing,? said Hilliard MacBeth, author of When the Bubble Bursts: Surviving the Canadian Real Estate Crash. ?I?m pretty sure it?s not going to be a soft landing. It?s going to be a crash.?
Since the turn of the century, home prices in Canada have risen steadily, save for a slight downturn during the American housing bust. Low interest rates, strong immigration, and an influx of foreign money into the market have made Canada?s housi...
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