Plenty of Plankton and Four Other Reasons Why Canada's Housing Market Won't Crash

Katia Dmitrieva, Bloomberg News | June 3, 2015 2:29 PM ET
More from Bloomberg News

Postmedia NewsHome prices are up 71 per cent nationwide over the past decade, prompting organizations from the International Monetary Fund to the Bank of Canada to label the market overvalued.

Stuart Levings, head of Genworth MI Canada Inc., the country’s largest private mortgage insurer, has a message for U.S. investors: red hot housing markets in Toronto and Vancouver aren’t about to plummet.

Canada’s reputation as a safe country to live and bank is luring buyers from abroad and far from creating a bubble, it may mean there isn’t enough housing to go around. Read on

The chief executive officer has his work cut out for him. Figures Tuesday showed Vancouver prices soared 9.4 per cent in May from a year ago and the average price of a detached home reached a record $1,417,409. Toronto is not far behind with the average price for a detached home hitting$1,115,120, an 18.2 per cent increase from a year ago.
Prices are up 71 per cent nationwide over the past decade, prompting organizations from the International Monetary Fund to the Bank of Canada to label the market overvalued, and investors such as Steve Eisman, of Neuberger Berman Group, to have shorted housing stocks.
Levings maintains the market has solid underpinnings and is traveling to the U.S. to make his case. Here’s his argument:

1) The Canadian Real Estate Ocean is Full of Plankton

“We look at the housing market like a food chain,” Levings said in an interview at Bloomberg’s office in Toronto May 28. “The first-time homebuyers are really the plankton. And if you don’t have plankton in the ocean, you’re going to eventually starve out even the big whales and the sharks. You need that first time homebuyer to buy that home so the next person can move out to buy their own home.”
The demand comes from millennials and the roughly 250,000 annual immigrants buying their first property, according to Levings.
“There is strong demand in this country and there will always be,” Levings said. “Why? Simply because of our immigration policy. We bring in first-time buyer pipelines through our immigration policy. They are great future first-time homebuyers that become plankton.”

 

2) Mortgage Regulations Worked

The federal government has introduced several mortgage rules since 2008 to take the froth off heady real estate markets. Shorter amortizations and higher down payments have kept the riskiest of buyers out of the market, Levings said. Average credit scores of Genworth customers remained steady at a high 737 points.
The trick is for the government to keep this balance and avoid making further changes that will entirely squeeze out first-time homebuyers and poison the food chain, Levings said.
Outside Vancouver and Toronto, markets have cooled.
“We’ve squeezed the first-time homebuyers down into a small group who are qualified, good-quality borrowers,” he said.