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Thursday, September 1st, 2016

Why Vancouver Home Mortgages won’t be Like the U.S.Crash – Ask a Vancouver Mortgage Broker

Why Vancouver Home Mortgages won’t be Like the U.S.Crash 

Vancouver Mortgage BrokerEver since the U.S.housing bubble crashed so dramatically and completely, some doom- sayers north of the 49th parallel are saying our housing market is facing the same calamity. Is it time to start with the hand wringing?

The answer is largely no, but that’s not to say we will be completely immune from some folks getting hurt should the market change to any great deal whether it be from falling home prices or rate increases. Another issue up here is that out personal debt ratio is still too high, but we aren’t be going to get caught out like anywhere near as a fraction as bad asU.S.neighbours.

Our market does face some potential challenges but we are also a lot more insulated by some significant differences between our lending practices and some of the mind boggling mortgage lending which occurred down south.

Let’s take a quick look at why their system blew apart and why ours won’t.

1. Less Reliance on Sub-Prime lending

InCanada, our mortgage lending practices are much more conservative. Roughly speaking there are only around 7% of mortgages that are not at prime lending rates, whereas in the U.S. close to almost one third of their mortgage were Alt-A or subprime mortgages were issued just prior to the bursting bubble, while another 20% of existing mortgages already fell into that category. That’s more than 50% in total!

2. Higher Down Payment Requirements

In theU.S.they were giving out mortgages like calendars. More than 50% ofU.S.home buyers didn’t even have enough for a 5% down payment so these people were especially vulnerable when housing prices dropped. In Canada, on the other hand, there is much less exposure to being harmed significantly by falling housing prices because only less than 20% of Canadian homebuyers have less than 15% equity as a down payment.

3. No Mortgage Teaser Rates

In theU.S.many of those new home buyers got sucked into the mortgage market by lenders using mortgage teaser rates that were significantly reset after only a couple of years. We don’t do that here inCanada, and cushion ourVancouverhome mortgages even further by ensuring that borrowers show they have the ability to pay for higher interest rates before they are even approved.  

4. Housing Starts are Tighter

Housing starts in the U.S. before the market crashed was as high as 80% versus a much more conservative growth of 10% in Canada as it currently stands.

5. Lower Debt to Income Ratio

It’s not perfect up here and some people think we are still way to high in this area, but we are nothing like what was experienced in theU.S.

If rates go up and housing prices begin to fall, there will always be some unfortunate folks who are going to get caught out. We won’t be immune from some harm happening to some home owners, butVancouverhome mortgages are still going to be way stronger than what happened with ourU.S.neighbours. As far as balloons bursting, it will be more comparing a kid’s birthday balloon to a hot air balloon.

 

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