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Wednesday, June 06, 2012

Thank God It's Canada

Garth Turner writes about the Canadian real estate bubble that's bursting in his Greater Fool Blog:

OSFI wanted mortgage borrowers to requalify for their loans every time they renewed. That sounds simple, but in a falling housing market (the one we're headed for) it could mean folks with homes worth less than they paid might have to cough up money to hang on to their mortgages. The intent was to ensure that banks' risk did not jump higher as real estate values headed lower. Those people with little, if any, equity — and therefore more likely to default in a bust — would be forced to sell or find other financing. If this were Wild Kingdom, that would be called natural selection.

But, it's Canada.

So this week OSFI let the howling banks know this rule will not be implemented (although most others will). People who bought real estate with no money down, taking 95% or 100% financing, will be allowed to sink without supervision when prices correct. Since we've never before had so many homeowners with no skin in the game, such low rates, such easy credit, such speculation, such debt and such inflated prices, we've no idea how this ends.

Oh wait. We do. It's called America.

Thank god it's different here.