U.S. housing woes get stuck at border
U.S. housing woes get
stuck at border
LORI MCLEOD
REAL ESTATE REPORTER
August 17, 2007
Canada's strong economy and dearth of high-risk mortgage lending should help the real estate sector withstand the volatility that's been buffeting the equity markets.
Investors worried about the fallout from defaults on high-risk mortgages in theUnited States
"I think that the fundamentals of the economy are relatively strong and this crisis is really about fear rather than reality. Also, traditionally we have seen a situation where the housing market does relatively much better than the stock market in periods of correction because it's like comfort food," Mr. Tal said.
In the U.S., loans given to high-risk borrowers at low interest rates, known as subprime mortgages, created "artificial demand" that sent house prices soaring, Mr. Tal said. This was exacerbated by speculators buying investment properties and trying to flip them at a profit. When interest rates went up, defaults soared, spilling over to hurt both lenders and investors who buy and sell mortgage-related debt.
Canada
A rise in house prices here has been sparked by real demand rather than speculation and compensates for the stagnancy of the market between 1992 and 1997, he added.
The Canadian unemployment rate is at its lowest point in more than 30 years, and that's boosted personal income levels and fuelled demand for residential real estate. Last month, the price of a resale home inCanada
The housing market is expected to grow at a more moderate pace next year. However, this will be the result of decreasing affordability rather than the impact ofU.S.
"There's no direct tie between theU.S. U.S.
In terms of borrowing costs, theU.S.
That's because the resultant credit market woes have made the Bank of Canada less likely to raise its overnight interest rate when it meets next month, he said. The overnight rate is used by banks to set the prime lending rate for their best customers, and that in turn is what variable mortgage rates are priced on.
Fixed-rate mortgage rates could also edge down if nervous investors continue to move their money from stocks into lower-risk investments such as government bonds. That's because fixed-rate mortgages move in tandem with bond yields, and bond yields drop when increased demand sends their prices higher.
LORI MCLEOD
REAL ESTATE REPORTER
August 17, 2007
Canada's strong economy and dearth of high-risk mortgage lending should help the real estate sector withstand the volatility that's been buffeting the equity markets.
Investors worried about the fallout from defaults on high-risk mortgages in the
"I think that the fundamentals of the economy are relatively strong and this crisis is really about fear rather than reality. Also, traditionally we have seen a situation where the housing market does relatively much better than the stock market in periods of correction because it's like comfort food," Mr. Tal said.
In the U.S., loans given to high-risk borrowers at low interest rates, known as subprime mortgages, created "artificial demand" that sent house prices soaring, Mr. Tal said. This was exacerbated by speculators buying investment properties and trying to flip them at a profit. When interest rates went up, defaults soared, spilling over to hurt both lenders and investors who buy and sell mortgage-related debt.
A rise in house prices here has been sparked by real demand rather than speculation and compensates for the stagnancy of the market between 1992 and 1997, he added.
The Canadian unemployment rate is at its lowest point in more than 30 years, and that's boosted personal income levels and fuelled demand for residential real estate. Last month, the price of a resale home in
The housing market is expected to grow at a more moderate pace next year. However, this will be the result of decreasing affordability rather than the impact of
"There's no direct tie between the
In terms of borrowing costs, the
That's because the resultant credit market woes have made the Bank of Canada less likely to raise its overnight interest rate when it meets next month, he said. The overnight rate is used by banks to set the prime lending rate for their best customers, and that in turn is what variable mortgage rates are priced on.
Fixed-rate mortgage rates could also edge down if nervous investors continue to move their money from stocks into lower-risk investments such as government bonds. That's because fixed-rate mortgages move in tandem with bond yields, and bond yields drop when increased demand sends their prices higher.