It is well-known that one of Canada’s most significant economic risks includes household debt in the housing market. Memories of the 2006-2008 United States housing crash leave Canadians concerned that this is their fate. Statistics seem to suggest the same fate; Canadian households hold some of the highest levels of debt in the world. Household debt continues to surpass records every year, and houses have become unaffordable for the average Canadian.
Although debt levels have sky-rocketed, the housing market is stable considering one crucial variable: credit quality. Credit quality is the measure of the ability to pay back debt. Canadians haven’t had trouble paying back debt in regular intervals. In contrast to the situation a decade ago in the US, the number of borrowers with high credit quality has risen from 66 percent to 88 percent in 2017, per the Chartered Professional Accountants of Canada (“CPA”) new report on the housing market’s stability.
The CPA report does raise a point of concern; there’s been an increase in non-regulated lenders as Canadians are having trouble passing the strict mortgage test and so they turn to alternative sources for funding. Unregulated loans impede on the regulator’s ability to track credit quality issues.
The issue of whether the Canadian housing market is doomed for a crash is not a black and white issue, but it’s safe to say, for now, the market is stable. The current prices of houses in the market is merely a reflection of the relatively healthy financial system in Canada.