Careful Lending Benefits Canada's Housing Market

While the housing market in the U.S. is moribund, it's healthy in Canada. In one respect Canada got lucky, but it also had a very different approach to mortgage finance.

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The real estate market in much of the United States continues to struggle. But you can travel a relatively short distance and see a big difference. Just cross the border to Canada. NPR's Wendy Kaufman reports.

WENDY KAUFMAN: Vancouver is often considered one of the world's most livable cities - spectacular scenery, cultural diversity, great restaurants, a vibrant waterfront and high-rises dotting the skyline. A new one is�going up�right now in the middle of downtown.�

Mr. DAVID KENNEDY (Site Superintendent): It's a 38-story with rooftop deck.

KAUFMAN: David Kennedy is the site superintendent here.

Mr. KENNEDY: It's office space from five to 12 and residential from 14 to 36.

KAUFMAN: And is there demand for more housing downtown?

Mr. KENNEDY: Seems to be. Theyre still selling.

KAUFMAN: Unlike the U.S., Canada doesnt have huge inventories of unsold properties or foreclosures dragging down the market.

Professor TSUR SOMERVILLE (University of British Columbia): If one looks at the difference between the United States and Canada, you have to look at what went on in housing finance.

KAUFMAN: Tsur Somerville of the University of British Columbias Sauder School of Business says Canada did not have an explosion of subprime lending.

Prof. SOMERVILLE: Culturally, institutionally, the type of lending frameworks, everything here in Canada made that more difficult to get going.

KAUFMAN: Canadians bankers are often characterized as stodgy, and they were more careful about lending money.

Cameron Muir, of the British Columbia Real Estate Association, adds: They didnt encourage unqualified buyers to jump into the market.

Mr. CAMERON MUIR (Chief Economist, British Columbia Real Estate Association): I have yet to see an introductory teaser rate in Canada. We didnt have such things.

KAUFMAN: Canadians generally put more money down than their U.S. peers, and there is no tax break for mortgage interest. Moreover, says Muir, buyers who put 20 percent or less down have to get mortgage insurance, and the government sets the criteria for borrowers.

Mr. MUIR: That means that you're going to have another set of eyes look at how you're going to qualify for that mortgage. And, of course, those mortgage insurance companies have a vested interest in making sure that that mortgage is going to be paid and doesnt go into arrears.

KAUFMAN: The result: fewer bad loans. Another difference: Canadian banks typically write five-year, not 30-year loans. And they often hold on to those loans rather than sell them to investors.

Canada did feel the effects of the global recession, and housing prices did tumble - about 15 percent between 2008 and early 2009. But for the most part, prices in Canada rebounded quickly.

Real estate agent Robert Valeriote says in some places, including Vancouver, prices actually rose.

Mr. ROBERT VALERIOTE (Real Estate Agent): I think it was pent up demand. People were hearing all the bad news coming out of, you know, our neighbors down in the States, and this and that. And everyone took a step back, and then everyone jumped back in, and the demand was outrageous and the prices just skyrocketed.

KAUFMAN: Prices have declined a bit since the first quarter of the year and sales are down a bit, but the market remains solid and concerns about a housing bubble have subsided.

(Soundbite of a waterfall)

KAUFMAN: Cascading water adorns the entry to this luxury condo, originally built as part of the recent Vancouver Olympics.

Ms. JOANNA KRITIKOS (Real Estate Agent): The floor is an engineered...

KAUFMAN: Joanna Kritikos shows off a first floor unit, which felt a bit like being in a goldfish bowl. It was priced at over a million dollars; two not very big bedrooms, and a four and a half foot wide space euphemistically called a flex space.

Vancouver Real Estate agent Valeriote and I took a peek.

Mr. VALERIOTE: You could use it as either a walk-in closet, a storage, or a home office. I've seen lots of home offices built into rooms this size.

(Soundbite of laughter)

KAUFMAN: Spaces are small because land is pricy and scarce. And lots of people want to live here, including a steady stream of wealthy Asian immigrants who want to buy homes. Whats more, many Asians are investing in Canadian real estate, and that too has helped the country's real estate market continue to hum.

Wendy Kaufman, NPR News.

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