Here's why it is a must read:
Warren Buffett has famously advised, "You only have to do a very few things right in your life so long as you don't do too many things wrong." For investors considering buying Canadian residential real estate at the moment, this could very well be one of those wrongs you absolutely need to avoid.
Despite claims that Canada's boring but prudent financial system has somehow prevented the negative effects of its housing bubble from coming to bear, the reality is that the day of reckoning has only been postponed, not prevented. Canadian banks may indeed be some of the safest in the world, but that is arguably largely because CMHC is holding all the toxic Canadian subprime mortgages for them. Canada's residential housing market is anything but a safe place to be at the moment ...
...new, high-risk borrowers, propp[ed] up already historically high prices with unsustainable, artificial demand. From 2007 to early 2009, the total dollar value of CMHC's outstanding MBSs grew from $138 billion to $265 billion, an increase of 92%. During this same time, the total mortgage credit outstanding on the collective books of Canadian banks increased by only 1% to $447 billion.
In other words, all the market demand that has been propping up Canadian house prices can be attributed to Canada's version of subprime loans that the free market was not willing to bear the risk of.
...key causes of the U.S. housing bubble have been sufficiently replicated in Canada.Thank you Chris Gallant for writing so clearly recently what we've been warning of here at HHV for years.