Skip to Content
Stock Strategist Industry Reports

When the Canadian Housing Bubble Pops

Strong average loan/value ratios may not fully protect the country's banks.

Mentioned: , , , , , , , , ,

Although interest rates in Canada remain at all-time lows, there are now signs that the housing market there has lost some steam as a result of the efforts of the Canada Mortgage and Housing Corporation. Nevertheless, we maintain our opinion that the housing bubble will not significantly deflate until the Bank of Canada raises rates.

In the meantime, the Canadian banks argue that their loan/value ratios on residential loans are lower now than U.S. banks' were just before the bursting of the U.S. housing bubble; however, our review reveals that the average loan/value ratios of U.S. banks just before the housing collapse are similar to those we currently see on residential loans in Canada. More important, their distribution is eerily similar. Based on 10% incremental decreases in home values, it appears that the CMHC and the banks have significant risk of losses or impairment to capital levels.

Dan Werner does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.