C.D. Howe Institute:
Low Risk of US-Style Housing Bust in Canada
Toronto, Aug. 31 – While recent swings in Canadian house prices have raised concerns about the possibility of a U.S.-style housing bust in Canada, the risk of that happening is low, according to a study released today by the C.D. Howe Institute. In “Not Here? Housing Market Policy and the Risk of a Housing Bust,” author Jim MacGee evaluates the likelihood of a US-style housing market crash in Canada by examining what caused the US housing boom and bust from 2000 to 2010 and comparing housing market policies in the two countries.
Professor MacGee finds a decline in underwriting standards played an essential role in the US housing market boom and dramatic bust. While monetary policy was very similar in both countries from 2000 to 2008, housing markets (especially the subprime component) were structured and regulated differently in each, he says.
Canadian housing policies, which avoided the sharp decline in underwriting standards seen in the US, worked well in reducing the possibility of a housing bust in Canada during 2008-2009, and continue to mitigate the risk of a massive wave of defaults in the future, concludes the author.
For the study
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For more information contact:
Jim MacGee, Associate Professor of Economics, University of Western Ontario;
Finn Poschmann, Vice President, Research, C.D. Howe Institute,
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