If you’ve spent time chatting with me or reading a few of the posts on this site regarding real estate then you’ll know I’m bullish on the housing market. Quite often I hear people talk about the housing bubble in Canada because we’ve had some exceptional growth in certain areas (you don’t hear people worrying about a housing bubble in Cape Breton or Winnipeg) and they think because the US’s housing market and even Britian’s is tanking we’ll be quick to follow.

The big difference is this: Canadian banks aren’t idiots like the ones in the USA or UK. Banks and lending companies south of the border and across the pond have made horrible lending decisions. They allowed people to over extend the amount of debt they could comfortably carry, they locked them into variable rate mortgages with great initial rates that skyrocketed after the initial period and the gave money to people who clearly weren’t responsible enough to pay it back.

Recently the Canadian government has made a rock solid move, in my opinion, by changing the down payment rules and amortization periods. The new rules officially come into effect October 15th, but many banks have already adopted them. The new rules are:

• No more 40 year (often called “two generation”) mortgages, the maximum amortization is 35 years (still a bad deal – always go 25 years, if you can’t afford it, don’t buy a house yet)
• No more no money down mortgages, Canadians must have 5% down (leave the no money thing to shady operations like the Brick)

Credit rating requirements have also been increased and income to debt ration has been increased meaning you can now qualify for more money.

The government is way ahead of the curve on this one and even the hard hits Canadian manufacturing is receiving won’t send us into a housing crisis.

The most important stat at all, I think, when people start fear mongering and comparing the looming real estate bubble they think is coming to that of the early 1990′s is the mortgage default rate – always an excellent indicator of a possible housing recession. In 1990 it was a whopping .65%, a monster compared to today’s .27%.

Now compared the United States 1% mortgage default rate … we’re looking pretty good.