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Thread: The Elusive Canadian Housing Bubble

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    Default The Elusive Canadian Housing Bubble

    I thought the Canadian crowd might like this ...


    by Alexandre Pestov - Schulich School of Business

    (P.S. - Uploading the PDF kept failing - so you'll have to use the link)

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    Default Re: The Elusive Canadian Housing Bubble

    'tis INSANE what I've been seeing.

    I'm having the same "conversation" with Torontonians that I had on DC housing bubble blog & SD housing bubble blog ca. summer 2006.

    " There will never be a Canadian housing bubble. "
    " ... somewhere to sleep ... and have sex ..."

    Point out that only 2 countries have "survived", Oz & the GWN and people seem to go deaf & not want to hear how we might have survived.

    Condo maintenance fees are running higher than my current rent(!!!)[0], and the property tax will be around 30% of the maintenance fees)

    [0] granted that in the vernacular my "apartment" is a ****hole, but still ...

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    Default Re: The Elusive Canadian Housing Bubble

    Quote Originally Posted by Spartacus View Post
    'tis INSANE what I've been seeing.

    I'm having the same "conversation" with Torontonians that I had on DC housing bubble blog & SD housing bubble blog ca. summer 2006.

    " There will never be a Canadian housing bubble. "
    " ... somewhere to sleep ... and have sex ..."

    Point out that only 2 countries have "survived", Oz & the GWN and people seem to go deaf & not want to hear how we might have survived.

    Condo maintenance fees are running higher than my current rent(!!!)[0], and the property tax will be around 30% of the maintenance fees)

    [0] granted that in the vernacular my "apartment" is a ****hole, but still ...
    Insane is a good description.

    Oldest son of a long time and close friend of mine just bought his first home a couple of months ago. He and a buddy of his decided that it was "cheaper" to pay the mortgage on a house than the rent on their separate apartments.

    They have a variable rate mortgage at a current interest rate that is less than 3%. His parents live in a upscale, but older neighbourhood. The house their son bought is in the same district, but on top of the hill overlooking them, about 20 years newer, and twice the size.

    When I saw the pictures of the "new" house I pointed out to his father that when we were at the same stage of life as his son, house prices to income levels were much more reasonable than they are now, and yet although we both were earning professional incomes we couldn't afford such a house. The difference? Interest rates on the debt. Back then they were double digits.

    Our bankers and politicians are wrecking the country...

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    Default Re: The Elusive Canadian Housing Bubble

    Quote Originally Posted by GRG55 View Post
    The difference? Interest rates on the debt. Back then they were double digits.

    Our bankers and politicians are wrecking the country...


    question, why weren't interest rates lowered back then? wouldn't it be good to have low rates?

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    Default author's 1st language may not be english, and

    he's doing some really (I'm guessing for most North Americans) non-standard things here

    Until I realized what he was doing here I thought his hypothetical 10% rise was 10% to 11%.

    he calls interest rates going from 4% to 14% is a "10% rise", instead of calling this case the more usual "a 10 point increase", or some such.

    this really clashes on page 5:
    "10 percent rise in interest rates from 4 to 14 percent on a mortgage amortized over 25 years will send a $2,500 monthly payment to a stratospheric $5,701 or 128% increase"

    And there is the probable idiom he doesn't explain on p21
    "the shock waves rippled through the fabric of the global financial world at speed and intensity of those triggered by the Tsar Bomb. "


    "Tsar bomb" ? No explanation to non Russians?

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    Default Re: The Elusive Canadian Housing Bubble

    Quote Originally Posted by touchring View Post
    question, why weren't interest rates lowered back then? wouldn't it be good to have low rates?
    Because this was the 1980s and Central Bankers, led by the Volcker Fed, were frightened of inflation. Now they are frightened of deflation...

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    Default Re: author's 1st language may not be english, and


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    Default Re: The Elusive Canadian Housing Bubble

    And this just in from Edward Jones via The Globe and Mail ...

    Report warns of housing bubble threat
    ‘The increasing likelihood of a cooling housing market still poses some risks for investors who are not well-diversified’

    Steve Ladurantaye
    Globe and Mail Update Published on Tuesday, Apr. 27, 2010 9:36AM EDT Last updated on Tuesday, Apr. 27, 2010 10:37AM EDT


    Canada's housing market is looking increasingly like a bubble in the making, Edward Jones said today in a report.

    “Canada’s housing market escaped the recent severe downturns in the U.S. and other countries. However, today’s conditions in Canada share some characteristics of those countries prior to their downturns, leading us to take a cautious stance on housing investments,” wrote analysts Kate Warne and Craig Fehr, adding that Canadians should prepare for “the possible impact” of a housing downturn.

    An asset bubble forms when cheap money causes speculators to flood into a market, driving prices higher despite weak underlying fundamentals. With unemployment high and the economic recovery on shaky ground, the rapid recovery of Canada's real estate market has many economists concerned that prices could head lower. Prices have gained almost 20 per cent in the last year, as a lack of inventory and easy access to cheap money has propelled Canadians toward home ownership.

    The analysts said three factors must be in place for a bubble to form – prices that are too high compared to historical averages, easy credit, and lax government policy that allow people to get in over their heads. Last month the federal government made it more difficult to obtain a mortgage, requiring all borrowers to qualify at the five-year rate when applying for credit rather than the variable rate, which can be much lower.

    “We think the first two conditions characterize the current Canadian housing market,” the report states. “To avoid the third condition, the government is taking steps to tighten mortgage availability, and regulation remains relatively tight. While we believe any housing downturn in Canada won’t be as severe as the recent U.S. experience, the increasing likelihood of a cooling housing market still poses some risks for investors who are not well-diversified.”

    While the economy has shown signs of strength, the analysts suggest the pace of recovery in the housing market has been too high to be sustainable.

    “Housing prices have outpaced the overall economy, including unemployment trends and gross domestic product (GDP) growth,” they state. “As a result, our stance on Canadian housing market risk is becoming increasingly cautious.”

    Tighter lending standards, rising interest rates and mortgage costs, an increase in new supply and consumer deleveraging could all conspire to take the market lower, they said. Any slowdown has implications for the broader economy, they said, particularly when it comes to consumer spending.

    About 30 per cent of all mortgages taken out between 2007 to 2009 have terms of less than three years, they said, which means they will likely be renewed at higher rates.

    The extra costs could keep people from spending on other items -a 3 per cent increase in mortgage rates would mean an extra $444 a month for a mortgage of $254,514, they said. That would shift $1.82-billion of Canadians' $911.5-billion in annual discretionary spending toward mortgage costs.

    “In addition, Canadian consumer debt has risen steadily for several years, reaching new highs as measured by debt as a percentage of disposable income,” they said. “Thus, consumers don’t appear to have the flexibility they might have had in the past.”

    Last week, Gluskin + Sheff economist David Rosenberg suggested Canada's housing market was in for a 20 per cent price correction. He said government intervention and easy money has helped the market get ahead of itself.

    “The question is not whether home prices slide especially in bubbly Toronto and Vancouver, but just how much froth is there to come out,” he said. As rates begin to rise and more supply comes on the market, he said the market will be under a lot of pressure to keep advancing.

    “The housing market in Canada, the goose that laid the golden egg for the broader economy, is now going to be operating without the crutch of massive government support. It will be fascinating to see how this all plays out.”

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    Default Re: The Elusive Canadian Housing Bubble

    Hi itulipers, this is my first post on the board but I've been reading for a year or so now. I noticed today that the Canadian banks lowered fixed mortgage rates by 10-15 basis points, citing the Greek (EU) crisis and subsuquent market pullback and flight to Canadian bonds as the primary reason for doing this.

    http://www.theglobeandmail.com/repor...rticle1564570/

    In my view, this will effectlively prolong and enhance Canada's real estate bubble. The B of C has hinted at rate increases for the end of June but in the event of a further market pullback, will these increases be put on hold? Given that ongoing market pullbacks are highly likely on and off for the next several years, can we legitmately expect rates to rise in rapid and linear fashion, as has been speculated widely by many individuals? Also, I'm interested in hearing peoples interpretation of how the deflation of the Canadian real estate bubble might occur. Obviously the key indicators suggest that we are very frothy in some parts of Canada and I expect a sizeable correction but I'm starting to think that the bubble popping may be further off than I thought (I was thinking it would start this summer and fall), especially if market turmoil in the EU has the effect on mortgage rates that it did today. Thoughts?

    Things to ponder:

    1) Western Canada is loaded with natural resources, which typically gives Canada a positive balance of trade
    2) Our own ugly debt problem has not been acknowledged but still exists although perhaps not to the extent to the US.
    3) Are our banks as healthy as reported? US banks looked healthy prior to a collapse in real estate as well.
    4) CHMC is still guaranteeing mortgages that banks probably wouldn't touch. I wonder what would cause that situation to end.

    Thinks in advance for any thoughts that you have.

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    Default Re: The Elusive Canadian Housing Bubble


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    Default Re: The Elusive Canadian Housing Bubble

    Quote Originally Posted by Fiat Currency View Post
    Well here we are almost 3 years later, watching gold and silver (and oil and copper and everything else in the commodity complex) get smashed. Canadian housing you ask?


    Home prices tick higher despite sales slump

    Prices inch 2.5% higher in March from year earlier, CREA reports

    CBC News
    Posted: Apr 15, 2013 9:27 AM ET
    Last Updated: Apr 15, 2013 10:28 AM ET

    Canadian home prices continued their upward trajectory in March despite a large decline in the number of homes sold, the Canadian Real Estate Association said Monday.

    The number of sales recorded on the group's MLS system declined by 15.3 per cent in March 2013 compared with the same month a year earlier.

    Yet despite that drop-off, prices inched higher. The average price of a Canadian resale home was $378,532 in March, up 2.5 per cent from a year earlier...

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    Default Re: The Elusive Canadian Housing Bubble

    Quote Originally Posted by GRG55 View Post
    Well here we are almost 3 years later, watching gold and silver (and oil and copper and everything else in the commodity complex) get smashed. Canadian housing you ask?
    Fun times for sure. When does the Canadian housing market's turn come? Who knows.

    All I know, is it sure is going to be a fun 6 months if you're fortunate enough to have a shed full of dry powder.

    I love a good deflationary sale

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    Default Re: The Elusive Canadian Housing Bubble

    Quote Originally Posted by Fiat Currency View Post
    Fun times for sure. When does the Canadian housing market's turn come? Who knows.

    All I know, is it sure is going to be a fun 6 months if you're fortunate enough to have a shed full of dry powder.

    I love a good deflationary sale
    A chart of relative values of Canadian housing vs USA housing from a recent BoM report. No prizes for figuring out which line is which



    Oh, and by the way, if anybody wants a few minutes of amusement about the idiotic real estate market in one of the last holdouts in the Great Global Property Bubble, take 3 minutes to cruise through this link:
    http://vancouverpricedrop.wordpress....april-16-2013/
    Last edited by GRG55; 04-29-13 at 08:06 PM.

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    Default Re: The Elusive Canadian Housing Bubble

    Even CNBC is getting in on the discussion...


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    Default Re: The Elusive Canadian Housing Bubble

    in march '10, when the initial post in this thread went up, gold holders were thrilled that it was trading at 1100-1150. just an fyi...

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    Default Re: The Elusive Canadian Housing Bubble

    This chart probably looked quite different in circa-2006

    A study by the OECD, which compared prices with local wages and rents, suggests Belgium, Norway and Canada are the most expensive markets compared with their own long-term averages, followed by New Zealand, France and Australia...


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    Default Re: The Elusive Canadian Housing Bubble

    Two things that were too amusing not to post:

    Vancouver Realtor Hunger Index

    The Vancouver Realtor Hunger Index for April 2013 was 60.

    The VRHI is the percent of realtors who earned no commission income for the month using a simplistic formula: start with the total reported sales from the REBGV Monthly Statistical Report; assume 5% of those sales were ‘double ended’ (one realtor kept the entire commission by ‘representing’ both buyer and seller); add to the number of ‘double ended’ commissions the number of split commissions (which I reduced by an assumed 15% ‘earned’ by realtors who handled multiple sales); divide the resulting number of commissions by the total number of realtors; subtract that fraction from 1 to yield the percent of realtors not earning commissions and therefore going hungry.

    Historical results using the same methodology are below (the REBGV website (http://www.rebgv.org/about-rebgv) reveals neither the exact number of realtors at any particular time nor the percent actively engaged in selling residential property; I used 11,000 for 2013, 2012 and 2011; 10,000 for 2010, 9,400 for 2009, 9,500 for 2008, 9,000 for 2007, 8,200 for 2006, 7,800 for 2005, 7,100 for 2004, 6,700 for 2003, 6,500 for 2002 and 6,700 for 2001):

    Month....2001.....2002.....2003.....2004.....2005. ....2006.....2007.....2008....​.2009.....2010..... 2011.....2012.....2013
    Jan.........70%......42%......51%......54%.....64% ......61%.....67%......68%....​..87%......68%..... 72%......76%.....80%
    Feb.........56%.....23%......31%......28%.....35%. .....40%......47%.....53%.....​.74%......59%.....5 3%......61%.....73%
    Mar........42%.....13%.......31%......0%.......16% ......18%.....36%......47%....​..60%......48 %....38%.....56%.....64%
    Apr.........44%.....3%........23%......0%.......14 %......32%.....37%......44%...​...48%......42%.... .51%......58%....60%
    May.......33%......12%......19%......8%.......5%.. ......13%.....20%......47%....​..38%......47%..... 49%......57%
    Jun.........30%......31%......12%.....18%......8%. .......20%.....21%......57%...​...25%......51%.... .51%.....64%
    Jul..........35%......32%......0%.......29%......2 2%......45%.....28%......62%..​....27%......62%... ..61%.....68%
    Aug........36%......37%.....18%......42%......22%. .....39%.....37%.....73%......​39%......63%......6 4%.....75%
    Sep.........46%......37%.....17%......33%......29% ......49%.....49%.....72%.....​.37%......63%...... 66%.....77%
    Oct.........41%......27%......6%.......36%......34 %......45%.....44%.....76%....​..34%......61%..... .65%.....71%
    Nov........35%......35%.....25%......42%......37%. .....52%.....47%.....85%......​45%......58%......6 4%.....74%
    Dec........41%......44%......40%.....52%......50%. ......66%.....65%.....84%.....​.55%......68%.....7 5%......83%

    This thread will be updated at the beginning of every month as soon as the REBGV reports the prior months' sales.



    Vancouver Price Drop


    Documenting Vancouver real estate price movements


    Weekly Drop Metro Vancouver Attached – May 1, 2013

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    Default Re: The Elusive Canadian Housing Bubble

    this phenom might start to affect that number too:


    • Updated June 3, 2013, 10:36 p.m. ET

    The Latest Urban Development Trend: Less Elbow Room


    VANCOUVER, British Columbia—To get a sense of how America will pack more people into its cities, head north to an alley that runs behind Petersham Avenue here. That's where Ajay Kumar built a $300,000, Moroccan-themed cottage that sits in his backyard and will soon be occupied by his parents.

    Mr. Kumar's "laneway house" is part of a broader plan that encourages Vancouver homeowners to add rental units in their basements, attics and backyards. The hope is to reduce sky-high housing costs and increase population density throughout the city—including the single-family-home neighborhoods like Mr. Kumar's that surround the city's towering downtown.


    Cities across the U.S. and Canada are liberalizing their zoning codes to allow multiple dwellings on a single lot. Planners like these "accessory units" because they steer growth to developed land and infrastructure, reducing the cost of city services. Such housing can allow seniors to live near their children. And the dwellings are smaller and cheaper—helping cities create more affordable housing.


    Few cities have gone as far as Vancouver, which has seen real-estate prices soar after an influx of domestic and foreign buyers. In many U.S. cities, citizens might not tolerate changing the rules to boost population density. But other places, including those with high real-estate prices and housing shortages, are encouraging accessory units despite resistance from some residents.

    more...
    in hawaii, it was called 'ohana zoning' and resulted in overloading of the infrastructure (and likely crimped NAR revenues) so it was stopped

    of course now they call it 'transit oriented development' and are attempting to raise the height limit from 400feet to 700feet in town.

    infrastructure?
    who needs that, when ya can build to the moon...

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    Default Re: The Elusive Canadian Housing Bubble

    Quote Originally Posted by Fiat Currency View Post
    Fun times for sure. When does the Canadian housing market's turn come? Who knows.

    All I know, is it sure is going to be a fun 6 months if you're fortunate enough to have a shed full of dry powder.

    I love a good deflationary sale
    Maybe now?? Who can tell...

    An excerpt from Garth Turner's always amusing blog:

    Suck It Up

    How tough are things in the mortgage broker business? Brutal. Volumes have crashed. Virgins disappeared. Rates rising. And banks are rushing the exits.

    The latest to bolt is CIBC, which this week bailed out of its Mortgage Centre operations, selling it for scant dollars (reportedly) to Dominion Lending Centres, the outfit with the sleazy Don Cherry commercials (how could they be otherwise?). The deal means the bank gives up 160 stores, about 1,200 loan-flogging salespeople and $7 billion in volume. It also means Dominion swells to occupy almost a third of the entire industry.

    Why would the bank throw overboard a sales network generating revenue? Because in a shrinking real estate market, CIBC wants all that business redirected through its branch network where ‘deeper customer relationships’ can be forced. Kind of like bondage, but without the handcuffs and jelly.

    If you have your mortgage at the bank, chances are your car loan, RRSP and home equity loan will be, too. Plus TNL@TB can get her talons into you for fee-laden mutual funds and comatose GICs. Times may be tougher to be a banker, but they’re terrifying to be a broker.

    Peter is a real estate appraisar working the south end of BC’s Okanagan Valley, where the wrinkly people from Alberta migrate to avoid some snow, drink bad wine and live in monster houses before they croak. This, of course, is the goal of life.

    “I thought you would be interested in what is really happening here in the South Okanagan,” he writes me. “Here are three sales that may or may not shock you.”:

    3948 Valleyview Road , Penticton. “The ultimate in privacy. High end home located on two beautifully landscaped acres. This home has been completely remodeled. New granite kitchen with extensive cabinetry and 5 high end appliances. 3,000 square feet. New hardwood floors. 3 impressive bathrooms. Good quality finishing’s throughout. Triple garage has 3 separate door openers, built in oak cabinets with beverage fridge. Spacious patio areas to enjoy the privacy. Huge driveway and RV parking. Room to build that big shop and carriage home.”

    Sold in June of 2011 for $1,195,000. Sold in May of 2013 for $890,000. Loss: $305,000 plus realtor fees and improvements, or 29%.


    174 Ponderosa Ave, Kaleden BC (15 km south of Penticton)
    . “This stunning home is located right across the street from Pioneer Park & Skaha Beach. This is a 3 bedroom, 3 bathroom home with beautiful mountain and lakeviews. Large windows and sliders so that you have a lot of natural light. Large deck perfect for entertaining or taking in the lake breeze. The home is surrounded by Allan block walls and amazing gardens. The park across the street has new tennis courts, bbq area, park, basketball courts, boat launch and beach front area.”

    Sold in October of 2007 for $715,000. Sold in June, 2013 for $425,000. Loss of value: 40%.


    169 Christie Mountain Lane, Okanagan Falls
    . “Captivating lakeview from nearly every room! This Heritage Hill residence is situated on 0.529 acres of privacy. 4,254 sq ft, 4 bedrooms, 4 full baths (hobby room could be 5th bdrm). 2 large lakeview decks to enjoy the beautiful views! Spacious kitchen with breakfast bar, 6 appliances and open to nook with vaulted ceiling, skylights and bay picture windows. The sunken great room has a 19′ vaulted ceiling with extra large windows to take advantage of the incredible lake vista, rock faced floor/ceiling gas fireplace. The main floor master bedroom has a cozy fireplace, 4 pc ensuite and French doors to the pool area. This home is located 10 minutes south of Penticton. Relax in the warm Okanagan sun around the in-ground swimming pool or on one of the many stamped concrete decks. 4 gas fireplaces, 2 staircases to upper level, 2 furnaces w/central air, plus 2 hot water tanks, and much more.”

    Sold (new) in December of 2007 for $1,150,000. Sold in June of 2013 for $875,760. Loss: $274,000, or 24%.


    Still think the housing correction’s a mirage, or that real estate always goes up? This is what happens when property-rich, asset-poor, almost-retired people discover a house is not a financial strategy. And there are nine million Boomers in Canada. Get ready...

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    Default Re: The Elusive Canadian Housing Bubble

    Quote Originally Posted by GRG55 View Post
    Maybe now?? Who can tell...
    Even Krugman's babbling about it now ...

    Paul Krugman: Canadian Economy Vulnerable To 'Shock' Due To Debt Levels, House Prices

    The Huffington Post Canada | By Daniel Tencer Posted: 06/15/2013 7:13 pm EDT | Updated: 06/15/2013 7:17 pm EDT






    Renowned economist Paul Krugman is worried about Canada’s economy.The Nobel Prize winner and New York Times columnist wrote in a blog post Saturday that Canada “ought to be quite vulnerable to a big deleveraging shock despite its boring banks.”By “ought,” he means he’s not quite sure. But he sees warning signs in the fact that a very large spread has developed between U.S. and Canadian house prices, and Canadian household debt levels are reaching levels seen in the U.S. just before that country’s own “deleveraging shock.”House Prices, U.S. vs. Canada



    He sees Canada as a “test case” for theories as to why the U.S. has been struggling for so long to come out of its economic slump.
    One such theory -- which Krugman himself gives credence to -- says that it wasn’t the bank crisis that caused the slump, but rather the “overhang of private debt” from the country’s housing bubble.If that’s the case, Krugman argues, then the fact that Canada’s banks didn’t get involved with the “toxic” mortgage-backed assets that sank U.S. banks won’t stop the country from experiencing the same sort of economic stagnation and high unemployment that has plagued the U.S. for the past half decade.But for that to happen, the housing market would have to actually crash -- and, as Krugman notes, the market isn’t crashing.“People have been [predicting a crash] for several years, and it hasn’t happened yet — but remember, the US housing bubble took a long time to pop, too,” he wrote.Many economists argue that for a bubble to pop, there needs to be an “event” -- such as an economic slowdown, or a bank crisis -- and that no such event is on the horizon for Canada’s economy.Krugman is not alone in predicting trouble for Canada’s economy. Robert Shiller, the real estate expert whose name is on a U.S. house price index, said he is worriedCanada is experiencing a “slow-motion version” of the U.S.’s housing crash.The Economist and the OECD have both recently declared Canada to have one of the most overvalued housing markets in the developed world, and at least one U.S. hedge fund manager is staking all his clients’ money on a Canadian housing downturn.But there are plenty who argue the opposite. David Rosenberg, a former Merrill Lynch economist credited with predicting the U.S. financial crisis, said last week those betting against Canada are taking a big risk.He pointed to the fact that the fundamentals of Canada’s housing market have turned positive recently, after slumping for many months, and that Canada’s bank profits are holding up despite predictions for nearly a year they would turn south.And there are many who continue to argue it was fraudulent business practices and poor regulation in the U.S. that caused the collapse.A lot of the problems that generated the crisis in the U.S., they just never happened in Canada,” University of Toronto finance professor Laurence Booth told the Financial Post. The people betting against the Canadian banks “have no idea of the difference between the Canadian and U.S. housing markets.”

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