Industry rejects market bust analysis

The pushback is in reaction to Ben Rabidoux, an analyst with Hanson Advisor, and his assertion the differences between the Canadian and U.S. housing markets have been “dramatically overstated."

“If you look at how levered our economy and our labour market is to this current housing boom,” Rabidoux said in a recent interview on BNN, “my position has been that it will be very difficult for policymakers to unwind this boom without significant collateral damage.

“If we look at housing-related industries as a percentage of GDP, we’re well above where the U.S. peaked.”
Rabidoux says that Canada’s housing strength is not sustainable, especially when compared to other developed economies where in the wake of the financial crisis real estate markets suffered double-digit sales and price declines.

His remarks come on the heels of reports that Vijai Mohan, founder and portfolio manager of Hyphen Fund Management, admitted that nearly his entire portfolio is set up to profit on a downturn in Canadian housing market.

Mohan also has gone on the record stating that said that the mortgage default insurance bought by many banks may not hold as regulators take a closer look at underwriting practices. Mohan called this a "put-back" – something that became common in the wake of the housing boom in the U.S. after many lenders were alleged to have pursued unethical or fraudulent lending practices.

“The problem with the thinking about the transference of risk here is it all depends upon whether or not mortgage debt was initiated in a proper and complete fashion,” said Mohan, “and our research has uncovered that could be put-back risk in fact for Canadian financial institutions as a result of missteps in the underwriting process.”

Canada's housing market has shown signs of weakness in recent months, as the April numbers from CMHC show that new housing starts have slipped from March to 174,858 from 181,146. The peak of 228,942 reached in the second quarter of 2012 is a far cry from the 175,191 new starts in the first quarter of 2013 – a drop of more than 23 per cent.

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