Apparently, according to the Bank of Canada Governor, David Dodge, the answer is yes! He said that Canadian lenders have also became very lax when lending money, which may have contributed to the inflation of real estate prices, particularly in Canada’s major cities, Vancouver, Toronto, Edmonton, Calgary and Regina.
And while Governor Dodge did not say that the situation in Canada closely resembles the subprime mortgage crisis in the U.S., he still believes that Canadian lenders have not reviewed their borrowing terms in a long while, deeming them far too easy on borrowers.
When giving a speech in Vancouver, Dodge said, “One worries about the structure of the mortgage market, that we may be actually aiding, facilitating a rise in the price of houses that is really not warranted. Housing prices in Vancouver, Edmonton, Calgary and Regina have soared, but that growth is to be expected from an expanding economy and population. More troubling is the picture elsewhere. [.] what has worried us a little bit more is that even if you extract from those centers, what we are seeing is house prices rising faster, probably at up to twice as fast as the rate of inflation.” (Source: Globe and Mail, September 26, 2007, online issue)
According to Statistics Canada, a number of housing markets in Canada are reporting potentially problematic price growth rates. For example, Halifax reported an increase of 6.8%, Hamilton reported 4.3%, London had five percent, and Winnipeg reported an even livelier rate of 15.7%.
Last year, and before all hell broke loose in the U.S. credit market, Dodge warned Canadian Mortgage and Housing Corporation (CMHC) and Canadian borrowers that new mortgage incentives, such as interest-only mortgages and mortgages with extended amortization periods, may not be the smartest route to take. Our savings rates have already been on the decline for years, and saddling consumers with more debt would not have been a productive move in the long run.
Not surprisingly, the housing market in Canada responded with rising prices, increasing demand, and general fear that such a growth rate cannot be sustained for long, at least not without a crash of some sort.
Considering how central banks around the world must have known about the potentially disastrous consequences of easy credit, it is worrying how little they did to prevent or at least moderate things. I suppose they should ask for their money back from whatever expensive school of economics they must have attended. I’m glad at least to read that Canada’s “central banker” is worried, and has been on the case of those that could create, heaven forbid, another financial fiasco.