No trigger for a Canadian house price crash: CIBC economist

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No trigger for a Canadian house price crash: CIBC economist

, j9 e7 v. o) h9 u; XCanadian house prices may continue to slide but there is no sign of a crash, a CIBC World Markets economist says. (CBC)Canadians haven't put themselves deep enough in debt to cause a U.S.-style housing market bust, a CIBC World Markets economist says.

In a report issued Tuesday, Benjamin Tal asks: "Where's the trigger for a Canadian house price crash?" He concludes there isn't one.
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5 p+ s' u: u" z. S"To be sure, house prices in Canada will continue to ease in the coming months," he says. "But the triggers that led to a free fall in Canadian real estate markets in the early 1990s and today in U.S. markets are nowhere to be found."

% S4 g6 x6 {( r0 b) ?2 JAs he sees it, Canadian home buyers never got as reckless as Americans.

( |  ^& d$ Q9 [+ O# A"By almost any measure, American households entered the current housing crisis from a more vulnerable position relative to their Canadian counterparts — carrying a heavier debt load and a much lighter net worth position. And when it comes to real estate speculation, Canada was not really a player.
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% F+ R- S9 R6 n9 N' Z"But even more important than the absolute and relative level of debt is the distribution of debt. At the peak of the cycle, subprime and Alt-A mortgages accounted for no less than 33 per cent of originations in the U.S. market. In Canada we estimate that at the peak, non-conforming mortgages reached 5.4 per cent of originations."

# B2 l! [  _$ `3 K- m& m" D4 jSubprime mortgages are those given to the least creditworthy borrowers. Alt-A mortgages are considered a step higher, although the category includes so-called liars' loans in which borrowers are not required to verify their earnings or assets.

. F+ U& _" e) q: F3 }- QTal says the U.S. meltdown is basically a subprime story.

9 @, S0 y. q* U) U"Eradicate subprime from the U.S. housing market and, instead of the most severe house price meltdown since the great depression, you get a trivial moderate cyclical slowing — something along the line of what we are currently experiencing in Canada."