They’re the kind of exotic mortgages that one typically associates with the reckless, go-go housing market that gripped the U.S., circa 2005: Put down 5% cash and get 3% back; or, wilder yet, put down nothing at all. So when these products — and others like them — started popping up in the normally cautious Canadian financial industry, it raised alarm among policy makers in Ottawa.
This is year twenty-five of the great Canadian housing bull market, a nearly uninterrupted straight line up that has few parallels in the world. At a time of soaring real-estate prices all over the globe, only one major economy — New Zealand — has a frothier housing market than Canada, according to an analysis by Bloomberg Economics. And after all those years of price gains, including a 21% surge since the pandemic began, millions of middle-class Canadians have no chance of scrounging together the money needed to make a conventional down payment of 20%.
In Whitby, a booming Toronto suburb nestled against the banks of Lake Ontario, this is a lament that mortgage broker Sherry Corbitt hears constantly from first-time home buyers. More than half of them, she says, are opting for loans that either allow them to borrow the money for their down payment or that provide cash back after the closing. A year ago, these products made up a small fraction of her business.
Asked whether this worries her at all, Corbitt, who works with some of Canada’s biggest banks, whips out a statistic she’s proud of: In her 13 years in the industry, not a single client has defaulted. “We’re never going to see what happened in the States,” she declares. “It’s just not possible here.”