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Mortgage Quality of Canadian Real Estate

Article Submitted by: Vishal Dwivedi

Sunday, 28 February 2010

The strength of the Canadian real estate market, especially its residential property market, rests in large part with the nation's strong banking system. This has been one of the reasons why many property investors from abroad prefer buying property in Canada over buying investment property in other markets. Canada's banking system has prevented the lax underwriting practices from developing and thereby from endangering the stability of the nation's entire financial system and the real estate market. Even though Canada's real estate market, notably the housing market, has seen an increase in mortgage servicing problems, these problems have had a negligible impact on housing so far. Stability in the mortgage quality of Canadian borrowers suggests that the risk of a financially-driven bust in home prices in Canada is remote. All this provides sufficient evidence to foreigners considering buying property in Canada that the Canadian residential investment property market offers stability and security for their investments.

Canadian mortgage borrowers' preference for equity over leverage exemplifies financial soundness that underlies Canada's housing real estate market. According to a recently released report by the Canadian Association of Accredited Mortgage Professionals, over 40 per cent of all mortgage holders in Canada have at least 50 per cent of the value of their houses in equity. Only two per cent of mortgage borrowers in Canada have negative home equity, meaning their mortgage exceeds the value of their house. This represents a startling difference from the situation in the United States, in which about 20 per cent of homeowners have negative equity in their home. Investors from aboard should consider the U.S. situation as a potential threat to the stability of the U.S. residential real estate market. Therefore, buying residential property in Canada is a much safer real estate investment option than is buying property in the United States.

Another reason why buying residential property in Canada is a sound investment decision is the fact that the recent rise in mortgage delinquencies in Canada has not had a significant effect on the nation's housing real estate market and thus on real estate investments. Although higher delinquencies suggest that foreclosure activity will likely pick up soon, foreclosures in Canada - and therefore distressed properties - remain limited in number, especially when compared to those in the United States. Canada's relatively insignificant subprime residential real estate market will produce a small number of foreclosures that will have a negligible impact on housing prices and transaction activity. Only if foreclosures are concentrated in specific localities will local real estate markets experience declines in home prices. This, nevertheless, may represent an opportunity for real estate investors from abroad to buy property in Canada at discounted prices, especially on distressed properties, in a real estate market that is otherwise characterized by strength and excellent growth prospects.

The Canadian financial system, which is credited with sound credit underwriting standards, guarantees that the exposure of the Canadian residential real estate market to loans of low quality will not endanger the stability of the market as a whole. A solid profile of the Canadian borrower suggests that financial factors underlying the residential real estate market in Canada sustain the market's prospects for solid growth in the future. Foreign investors interested in buying properties in the Canadian real estate market should find this assertion to be an important factor that guarantees the safety of their investments.

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About The Author:

Jimco International is overseas real restate agent deals in Investment Property Abroad and International real estate for buying and selling of properties. You can get more information on Jimco if you're looking for buying property abroad & Ski property for sale.

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